AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1997
REGISTRATION STATEMENT NO. 333-22123
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
NETSPEAK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 7373 65-0627616
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
<S> <C>
JOHN W. STATEN
CHIEF FINANCIAL OFFICER
NETSPEAK CORPORATION
902 CLINT MOORE ROAD 902 CLINT MOORE ROAD
SUITE 104 SUITE 104
BOCA RATON, FLORIDA 33487 BOCA RATON, FLORIDA 33487
(561) 997-4001 (561) 997-4001
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL INCLUDING AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
</TABLE>
--------------
COPIES OF COMMUNICATIONS TO:
DALE S. BERGMAN, P.A. LAWRENCE B. FISHER, ESQ.
BROAD AND CASSEL ORRICK, HERRINGTON & SUTCLIFFE LLP
201 SOUTH BISCAYNE BOULEVARD 666 FIFTH AVENUE
MIAMI, FLORIDA 33131 NEW YORK, NEW YORK 10103
TELEPHONE: (305) 373-9454 TELEPHONE: (212) 506-5000
TELECOPIER: (305) 373-9443 TELECOPIER: (212) 506-5151
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the Securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
--------------
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A), OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
NETSPEAK CORPORATION
CROSS REFERENCE SHEET
Furnished Pursuant to Item 501(b) of Regulation S-K
REGISTRATION STATEMENT
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus ............... Statement; Cross Reference Sheet
and Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus .................................. Back Cover Pagever Page and Outside
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges ............................ Prospectus Summary; Risk Factors
4. Use of Proceeds ....................................... Use of Proceeds
5. Determination of Offering Price ........................ Outside Front Cover Page; Risk
Factors; Underwriting
6. Dilution ............................................. Dilution
7. Selling Security Holders .............................. *
8. Plan of Distribution ................................. Underwriting
9. Description of Securities to be Registered ............ Description of Capital Stock
10. Interests of Named Experts and Counsel ............... Certain Transactions; Legal Matters
11. Information with Respect to the Registrant ............
(a) Description of Business .............................. Prospectus Summary; Risk Factors;
Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business
(b) Description of Property .............................. Business
(c) Legal Proceedings .................................... *
(d) Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Prospectus Summary; Dividend
Matters ............................................ Policy; Shares Eligible for Future
Sale; Risk Factors
(e) Financial Statements ................................. Index to Consolidated Financial
Statements
(f) Selected Financial Data .............................. Selected Consolidated Financial Data
(g) Supplementary Financial Information .................. *
(h) Management's Discussion and Analysis of
Financial Condition and Results of Operations ...... Analysis of Financial Condition
and Results of Operations
(i) Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure .............. *
(j) Directors and Executive Officers ..................... Management
(k) Executive Compensation .............................. Management
(l) Security Ownership of Certain Beneficial Owners
and Management ...................................... Principal Shareholders
(m) Certain Relationships and Related Transactions ...... Certain Transactions
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities ........................ *
</TABLE>
- ----------------
* Not applicable or answer thereto is negative
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 8, 1997
PROSPECTUS
- -------------------------------------------------------------------------------
2,000,000 SHARES
NETSPEAK CORPORATION LOGO
Common Stock
- -------------------------------------------------------------------------------
NetSpeak Corporation ("NetSpeak" or the "Company") hereby offers 2,000,000
shares of common stock, par value $.01 per share (the "Common Stock"). Prior to
this offering (the "Offering"), there has been no public market for the Common
Stock and there can be no assurance that such a market will develop after
completion of this Offering, or if developed, that it will be sustained. It is
presently anticipated that the initial public offering price of the Common Stock
will be between $8.00 and $10.00 per share. For information regarding the
factors considered in determining the initial public offering price of the
Common Stock, see "RISK FACTORS" and "UNDERWRITING." The Company has applied for
quotation of the Common Stock on the .
- -------------------------------------------------------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7 AND "DILUTION."
- -------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share ...... $ $ $
Total(3) ...... $ $ $
</TABLE>
- -------------------------------------------------------------------------------
(1) Does not include compensation payable to Josephthal Lyon & Ross Incorporated
("Josephthal"), which together with Cruttenden Roth Incorporated are
representatives of the several underwriters (the "Representatives") in the
form of a non-accountable expense allowance. In addition, see "UNDERWRITING"
for information concerning indemnification and contribution arrangements
with and other compensation payable to the Underwriters.
(2) Before deducting expenses estimated to be $750,000, including the
Representatives' non-accountable expense allowance.
(3) The Company has granted to the Underwriters an option (the "Over-Allotment
Option"), exercisable for a period of 30 days after the date of this
Prospectus to purchase up to 300,000 additional shares of Common Stock upon
the same terms and conditions set forth above, solely to cover
over-allotments, if any. If the Over-Allotment Option is exercised in full,
the total Price to Public, Underwriting Discounts and Proceeds to Company
will be $_______, $_________ and $__________, respectively. See
"UNDERWRITING."
- -------------------------------------------------------------------------------
The Common Stock is being offered by the Underwriters subject to prior sale
when, as and if delivered to and accepted by the Underwriters, and subject to
approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of the shares of Common Stock offered hereby will be made against
payment on or about ________________, 1997 at the offices of Josephthal Lyon &
Ross Incorporated, New York, New York.
JOSEPHTHAL LYON & ROSS CRUTTENDEN ROTH
The date of this Prospectus is ___________________, 1997
<PAGE>
[PHOTOGRAPHS OR ARTWORK]
WebPhone/registered trademark/ is a registered trademark of the Company.
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS." EXCEPT AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE
OVER-ALLOTMENT OPTION; (II) ASSUMES NO EXERCISE OF THE WARRANTS TO BE ISSUED BY
THE COMPANY TO THE REPRESENTATIVES, TO PURCHASE UP TO 200,000 SHARES OF COMMON
STOCK (THE "ADVISORS' WARRANTS"); (III) ASSUMES THE EXERCISE UPON CONSUMMATION
OF THIS OFFERING OF A WARRANT TO PURCHASE 452,855 SHARES OF COMMON STOCK (THE
"MOTOROLA WARRANT") HELD BY MOTOROLA, INC. ("MOTOROLA"); (IV) DOES NOT GIVE
EFFECT TO 207,679 SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE OF ANOTHER
OUTSTANDING WARRANT; AND (V) DOES NOT GIVE EFFECT TO 2,263,500 SHARES OF COMMON
STOCK ISSUABLE UPON THE EXERCISE OF OUTSTANDING STOCK OPTIONS GRANTED UNDER THE
COMPANY'S 1995 STOCK OPTION PLAN (THE "1995 PLAN").
THE COMPANY
NetSpeak develops, markets, licenses, and supports a suite of intelligent
software modules which enable real-time, concurrent interactive voice, video and
data transmission over packetized data networks such as the Internet and
local-area and wide-area networks ("LANs" and "WANs", respectively). The Company
believes that its technology is strategically positioned to capitalize on the
rudimentary shift in corporate telecommunications philosophy as businesses seek
to expand the functionality of their communication systems as well as optimize
their use of packetized data networks. Netspeak is currently marketing a
user-friendly core communications technology which enables, in a cost-effective
manner, corporations and other users to enhance the role of their packetized
data networks to support concurrent voice, video and data transmission. NetSpeak
believes that as potential users become increasingly educated as to the benefits
of integrating the two networks, significant revenue opportunities for the
Company will be generated.
The Company's software uses patent-pending intelligent virtual circuit
switching technology to provide gateways between packetized data networks and
traditional voice transmission networks. The technology also allows users to
integrate into packetized data networks a variety of features and functions
commonly found in traditional voice transmission networks, including automatic
call distribution ("ACD"), multi-point conferencing, interactive voice response
services, messaging services, and least cost routing, as well as to expand
functionality by offering additional features such as concurrent voice and data
transmission and video conferencing. The Company's patent-pending virtual
circuit switching technology provides intelligent call routing which enables
users to transparently communicate with each other on a point-to-point basis.
The Company believes that its products and systems are designed to allow
customers to integrate NetSpeak's technology into their existing network
infrastructures without the need for significant upgrading, and can ultimately
provide a complete software-based solution for the delivery of concurrent
real-time interactive voice, video and data communications over packetized data
networks.
In order to facilitate and accelerate the acceptance of NetSpeak's
technology as well as enhance the marketing and distribution of its products and
systems, the Company has established a number of strategic alliances with
various telecommunications and computer industry leaders. Under certain of these
agreements, either the Company's technology is integrated into products which
are marketed by its strategic partners or the Company's products and systems are
marketed and distributed by its strategic partners through various distribution
channels. The Company believes that these strategic alliances also offer access
to its partners' leading edge technologies, as well as insights into market
trends and product development.
In August 1996, the Company established a strategic alliance with Motorola
pursuant to which Motorola made a minority investment in the Company and the
Company granted Motorola a right of
3
<PAGE>
first negotiation on licenses of the Company's technology as it applies to the
cellular, cable and wireless communications industries. Motorola, through its
affiliates, is also conducting a test trial of a system that uses the Company's
products and systems and those of Motorola.
Beginning in June 1996, the Company entered into a strategic alliance with
Creative Technology, Ltd. ("Creative"), a world leader in the manufacture and
distribution of audio cards and multimedia computer peripherals. Pursuant to
such alliance, Creative made a minority investment in the Company. NetSpeak
granted Creative a world-wide license to market, distribute and bundle
NetSpeak's WebPhone client (or end-user) software under the Creative brand name
in the retail distribution channel and the Company and Creative are jointly
developing various other Internet-related software applications which use both
the Company's and Creative's proprietary technologies, in such areas as
multimedia applications for Internet Protocol ("IP") based networks.
In August 1996, the Company established a strategic alliance with the
Switching Systems Division of Rockwell International Corporation ("Rockwell"),
an industry leader in medium to high end ACD systems. As part of this alliance,
the Company's gateway products and ACD systems are being integrated into
Rockwell's ACD systems. Beginning in November 1996, the Company entered into a
strategic alliance with Infonet Services Corporation ("Infonet"), one of the
largest commercial data network carriers in the world. Pursuant to such
alliance, the Company will integrate its technology with Infonet's existing
global data network, to enhance concurrent voice and data transmission over the
network. The Company intends to seek to establish additional strategic
alliances.
In addition to marketing its technology, products and systems with its
strategic partners, NetSpeak has begun to market its products directly to
end-users, including telephone companies, cable companies, and other common
carriers, large business enterprises, ACD manufacturers and other equipment
manufacturers ("OEMs"), governmental and educational entities, as well as to
distributors, such as systems integrators ("SIs") and value added resellers
("VARs"). To date, such marketing efforts primarily have been limited to direct
contacts with a number of these customers. In addition, NetSpeak is marketing
its WebPhone client software products over the Internet, by advertising in
computer periodicals and through distribution agreements with over 700 Internet
service providers ("ISPs") worldwide. The Company is currently developing an
in-house marketing and sales infrastructure.
The Company's strategy is to become an industry leader in providing
business solutions for concurrent real-time interactive voice, video and data
transmission over packetized data networks. The Company intends to achieve its
goal by (i) establishing strategic alliances to facilitate technological
acceptance and enhance the marketing and distribution of its products and
systems; (ii) expanding its internal marketing and sales efforts; and (iii)
continuing research and development to enhance existing product applications, as
well as develop new applications.
NetSpeak was incorporated in the State of Florida on December 8, 1995 under
the name "Comnet Corporation." The Company began using the mark "NetSpeak" on
December 14, 1995 and formally assumed its present name on December 18, 1995,
when it acquired Internet Telephone Company ("ITC"), which had begun development
of the Company's technology in May 1995. Unless the context otherwise requires,
references herein to "NetSpeak" or the "Company" are to NetSpeak and ITC, its
subsidiary and Predecessor. The Company's executive offices are located at 902
Clint Moore Road, Suite 104, Boca Raton, Florida 33487, and Company's telephone
number is (561) 997-4001.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ...... 2,000,000 shares.
Common Stock outstanding
before the Offering ..................... 7,698,532 shares.
Common Stock to be outstanding
after the Offering(1) .................. 10,151,387 shares.
Use of Proceeds ........................... Expansion of sales and marketing efforts,
additional research and development expenditures,
capital expenditures and working capital and other
general corporate purposes. See "Use of Proceeds."
Risk Factors .............................. The securities offered hereby involve a high degree
of risk and immediate and substantial dilution. See
"Risk Factors" and "Dilution."
Proposed ______________ symbol ............ "______".
</TABLE>
- ----------------
(1) Gives effect to exercise of the Motorola Warrant. Does not give effect to
the exercise of (i) the Over-Allotment Option; (ii) the Advisors' Warrants
to purchase 200,000 shares of Common Stock, exercisable at 120% of the
public offering price per share; (iii) an outstanding warrant to purchase
207,679 shares of Common Stock exercisable at a price of $5.05 per share;
and (iv) stock options to purchase 2,263,500 shares of Common Stock granted
under the 1995 Plan at exercise prices ranging from $1.00 to $7.00 per
share.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
------------------ ---------------------------------------
MAY 15, 1995 DECEMBER 8, 1995 YEAR ENDED
TO DECEMBER 18, TO DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------------ ------------------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ....................................... $ - $ - $ 867,117
Total operating expenses ........................... 180,682 642,483 3,861,917
Loss from operations.................................. (180,682) (642,483) (2,994,800)
Net loss ............................................. (180,682) (642,483) (2,865,704)
Net loss per share ................................. (.35)
Shares used in computing net loss per share(2) ...... 8,217,151
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR(1)
DECEMBER 31, 1996
-----------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
------------- --------------- -------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ...... $6,294,697 $8,785,400 $24,775,400
Working capital ............... 4,303,825 6,794,528 22,784,528
Total assets .................. 8,277,615 10,768,318 26,758,318
Shareholders' equity .......... 5,678,903 8,169,606 24,159,606
</TABLE>
- ----------------
(1) NetSpeak acquired ITC by issuing 2,500,000 shares of common stock, valued at
$500,000, in exchange for all of the outstanding shares of ITC. The
acquisition was accounted for as a purchase, and the purchase price was
allocated to the assets acquired, including purchased research and
development in process, and liabilities assumed based upon their fair value
on the date of acquisition. The financial information identified herein as
for the Predecessor is for ITC for the period May 15, 1995 (inception) to
December 18, 1995, the date of its acquisition by NetSpeak. The financial
information identified herein as for the Successor is for NetSpeak
(including ITC on a consolidated basis from the date of acquisition) as of
December 31, 1996 and for the period from December 8, 1995 (inception) to
December 31, 1995 and for the year ended December 31, 1996.
(2) See Note 1 of "Notes to Consolidated Financial Statements" for an
explanation of the determination of the number of shares and share
equivalents used in computing the per share amounts. Does not give effect to
the exercise of (i) the Over-Allotment Option; (ii) the Advisors' Warrants
to purchase 200,000 shares of Common Stock, exercisable at 120% of the
public offering price per share; and (iii) stock options to purchase
1,710,000 shares of Common Stock granted under the 1995 Plan prior to
February 1, 1996, which are not included because such options were issued
prior to the 12 months immediately preceding the Offering and the effect on
net loss per share would be anti-dilutive.
(3) Gives effect to exercise of the Motorola Warrant and the receipt of
$2,490,703 or $5.50 per share therefrom. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(4) As adjusted to give effect to the sale by the Company of 2,000,000 shares of
Common Stock at an assumed offering price of $9.00 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY IS SPECULATIVE
IN NATURE AND INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE
CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE
PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS,
IN ADDITION TO HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
LIMITED OPERATING HISTORY; ACCUMULATED NET LOSS; EARLY STAGE OF
DEVELOPMENT. The Company commenced initial research and development efforts in
May 1995, released its initial products in February 1996 and has only recently
emerged from the development stage. Accordingly, the Company has only a limited
operating history upon which an evaluation of the Company and its prospects can
be based. As of December 31, 1996, the Company had an accumulated net loss of
$3,508,187. The Company's prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in an early stage
of development, particularly companies in new and rapidly evolving industries.
To address these risks and achieve profitability and increased sales levels, the
Company must, among other things, establish and increase market acceptance of
its technology, products and systems, respond effectively to competitive
pressures, introduce on a timely basis products and systems incorporating its
technology and enhancements to its product applications and successfully market
and support its products and systems. There can be no assurance that the Company
will achieve or sustain significant sales or profitability in the future. The
Company has provided a valuation allowance for the full amount of the deferred
tax asset arising from the Company's net operating loss carryforward. Such
valuation allowance is the result of management's belief, based on the
evaluation of currently available evidence, in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
that it is more likely than not that the Company will not generate sufficient
future taxable income to utilize the net operating loss carryforward. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY OF PRODUCT ACCEPTANCE IN DEVELOPING MARKETS; NEW PRODUCT
DEVELOPMENT RISKS. The markets for the Company's technology, products and
systems have only recently begun to develop and are rapidly evolving. In
addition, the Company's products and systems are new and based on emerging
technologies. As is typical in the case of new and rapidly evolving industries,
demand and market acceptance for recently introduced technology and products are
subject to a high level of uncertainty. Broad acceptance of the Company's
technology, products and systems is critical to the Company's success and
ability to generate revenues. Acceptance of the Company's technology, products
and systems will be highly dependent on the functionality and performance of the
products and systems and particularly on the success of the initial
implementation of its products and systems. There can be no assurance that the
Company will be successful in obtaining market acceptance of its technology,
products and systems. In addition, the Company's products and systems must be
adapted in certain instances to meet the specific requirements of the customer
hardware or software in which it is to be integrated. The adaptation process can
be time consuming and costly to both the Company and its customers and the
acceptance of the product or system may depend, to a substantial extent, on the
success of the adaptation.
Furthermore, products and systems offered by the Company may contain
undetected errors or defects when first introduced or as new versions are
released. Introduction by the Company of products and systems with reliability,
quality or compatibility problems could result in reduced revenues,
uncollectible accounts receivable, delays in collecting accounts receivable and
additional costs. There can be no assurance that, despite testing by the Company
or by its customers, errors will not be found in the Company's products and
systems after commencement of commercial deployment, resulting in product
redevelopment costs and loss of, or delay in, market acceptance. In addition,
there can be no assurance that the Company will not experience significant
product returns in the future. Any such event could have a material adverse
effect on the Company's business, financial condition and results of
operations. See "Business-Products" and "-Research and Development."
7
<PAGE>
NEED FOR CONTINUOUS PRODUCT DEVELOPMENT; RISKS OF RAPID TECHNOLOGICAL
CHANGE. The markets for the Company's products and systems are characterized by
rapidly changing technology. The introduction of products and systems which
offer applications incorporating new technologies could render the Company's
products obsolete and unmarketable and could exert price pressures on existing
products. Further, the markets for the Company's products and systems, including
the market for voice transmission over packetized data networks, are
characterized by evolving industry standards and specifications. As new
standards or specifications are adopted, the Company may be required to devote
substantial time and expense in order to adapt its technology, products and
systems. The Company's ability to anticipate changes in technology and industry
standards and successfully develop and introduce enhanced product applications
as well as new applications, in each case in a cost effective and timely manner,
will be a critical factor in the Company's ability to grow and be competitive.
There can be no assurance that the Company will successfully develop enhanced or
new product applications, that any enhanced or new product application will
achieve market acceptance, that the Company will be able to adapt its products
or systems to comply with new standards or specifications, or that the
introduction of new products or technologies by others will not render the
Company's technology, products and systems obsolete. See "Business-Products and
Systems" and "-Research and Development."
LIMITED MARKETING EFFORTS; RELIANCE ON STRATEGIC PARTNERS. To date, the
Company's marketing efforts primarily have been limited to establishing
strategic alliances and, to a lesser extent, commencement of in-house marketing
efforts to end-users and distributors. The Company believes that it will be
dependent in the near term upon its strategic alliances, in particular those
with Rockwell and Creative, to generate revenues from the sales of products and
systems incorporating the Company's technology or products. Creative accounted
for approximately 44% of the Company's net revenues during the year ended
December 31, 1996. There can be no assurance that Rockwell or Creative will
actively distribute the Company's technology, products and systems or that, if
they do so, that their efforts will be successful or generate significant
revenues for the Company. Although the Company is currently developing an
in-house marketing and sales infrastructure to focus on direct sales to
potential end-users and distributors, there can be no assurance that the Company
will have the necessary resources to do so, or that any such efforts undertaken
will be successful. See "Business-Strategic Alliances" and "-Marketing and
Sales."
HIGHLY COMPETITIVE INDUSTRY. The Company is unaware of any other company
which competes directly with the entire spectrum of products and systems it
offers. The Company does, however, face competition for each of the individual
products and systems. The Company competes with companies such as Vienna Systems
Corporation ("Vienna Systems"), Lucent Technologies, Inc. ("Lucent"), VocalTec,
Ltd. ("VocalTec") and Dialogic Corporation ("Dialogic") with respect to its
gateway products. Principal competitors for NetSpeak's software-based business
systems include companies such as Lucent. In the market for client software
products, the Company competes with VocalTec, Microsoft Corporation
("Microsoft") and Intel Corporation ("Intel"), among others. The Company expects
competition to persist, intensify and increase in the future. Many of the
Company's current and potential competitors have longer operating histories,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than the Company. In addition, the
Company competes with manufacturers of hardware-based business systems. Certain
of these competitors may be existing or potential strategic partners. There can
be no assurance that the Company will be able to compete effectively against its
competitors. See "Business-Competition."
DEPENDENCE ON KEY PERSONNEL. The Company's performance is substantially
dependent on the performance of its executive officers, particularly Stephen R.
Cohen, the Company's Chairman of the Board and Chief Executive Officer; Robert
Kennedy, President and Chief Operating Officer and Shane D. Mattaway, Executive
Vice President and Chief Technical Officer. Given the Company's early stage of
development, it is dependent on its ability to retain and motivate high quality
personnel, especially management and skilled development teams. The Company
maintains $2,000,000 in key man life insurance on Mr. Mattaway. The Company
currently does not intend to secure key man life insurance on other key
personel. The loss of the services of any of its executive officers or other key
employees
8
<PAGE>
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company's future success also depends
on its continuing ability to attract and retain additional highly qualified
technical personnel. Competition for qualified personnel is intense and there
can be no assurance that the Company will be able to attract, assimilate or
retain qualified personnel in the future. The inability to attract and retain
the necessary technical and other personnel could have a material adverse effect
upon the Company's business, operating results and financial condition. See
"Business-Research and Product Development" and "-Employees" and
"Management."
BENEFITS OF THE OFFERING TO CURRENT SHAREHOLDERS. The Offering will result
in an initial offering price per share of Common Stock substantially in excess
of the net tangible book value per share of Common Stock. In addition, the
8,151,387 shares of Common Stock held by existing shareholders, including the
452,855 shares of Common Stock to be issued upon exercise of the Motorola
Warrant (which will represent, in the aggregate, approximately 80% of the
outstanding Common Stock after completion of this Offering), were acquired for
an effective cash consideration of $11,199,407, or an average of $1.37 per
share, as compared to new investors who will by paying $18,000,000 or an assumed
initial public offering price of $9.00 per share for the 2,000,000 shares of
Common Stock offered hereby, and which will represent approximately 20% of the
outstanding Common Stock after completion of this Offering. Accordingly,
existing shareholders will realize an effective appreciation of $7.63 per share
of Common Stock in the value of their shares as a result of this Offering. See
"Dilution." The Offering will also result in a public market for the Common
Stock, which will be a benefit to affiliates and non- affiliates of the Company
alike because prior to the Offering there had been no public market for the
Common Stock.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS. The Company's success
will depend in part on its ability to obtain patent protection for its products,
preserve its trade secrets and operate without infringing upon the proprietary
rights of other parties. The Company has filed ten U.S. utility patent
applications, seven U.S. provisional patent applications and one Patent
Cooperation Treaty patent application relating to various aspects of the
WebPhone client and server software, the virtual circuit switching technology,
and techniques for resolving dynamically assigned Internet Protocol addresses.
There can be no assurance that patent applications to which the Company holds
rights will result in the issuance of patents, or that any issued patents will
provide commercially significant protection to the Company's technology. In
addition, there can be no assurance that others will not independently develop
substantially equivalent proprietary information not covered by patents to which
the Company owns rights or obtain access to the Company's know-how, or that
others will not claim to have or will not be issued patents which may prevent
the sale of one or more of the Company's products. In particular, Elk
Industries, Inc. ("Elk Industries") has asserted in a letter to NetSpeak just
prior to the expiration of U.S. Patent No. 4,124,773 owned by Elk Industries,
that the Company's WebPhone client software product infringed the now expired
patent. Given the initial distribution of the Company's WebPhone client software
prior to expiration of the asserted patent, the Company believes any potential
liability related to the allegation is not significant.
Generally, litigation, which could be costly and time consuming, may be
necessary to determine the scope and validity of others' proprietary rights, or
to enforce any patents issued to the Company, in either case, in judicial or
administrative proceedings. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third parties or require the Company to cease product sale and possibly
alter the design of the products. There can be no assurance that any licenses
required under any other third-party patents or proprietary rights would be made
available on acceptable terms, if at all. In addition, the laws of certain
countries may not protect the Company's intellectual property.
The software market has traditionally experienced widespread unauthorized
reproduction of products in violation of manufacturers' intellectual property
rights. Such activity is difficult to detect and legal proceedings to enforce
manufacturers' intellectual property rights are often burdensome and involve a
high degree of uncertainty and costs. The Company's success is also dependent
upon unpatented trade secrets which are difficult to protect. To help protect
its rights, the Company currently
9
<PAGE>
requires employees, consultants and strategic partners to enter into
confidentiality agreements that prohibit disclosure of the Company's
proprietary information. The Company also currently requires employees and
consultants to assign to the Company their ideas, developments, discoveries and
inventions. There can be no assurance that these agreements will provide
adequate protection for the Company's trade secrets, know-how, or other
proprietary information in the event of any unauthorized use or disclosures. See
"Business-Patents and Proprietary Rights."
RISKS OF INTERNET DISTRIBUTION. The Company distributes certain of its
client software products through, among other channels, the Internet.
Distributing the Company's products through the Internet makes the Company's
software products more susceptible to unauthorized copying and use than
distribution through conventional means. The Company has allowed, and currently
intends to continue to allow, potential customers to electronically download
from the Internet basic versions of its software for free to evaluate the
Company's products and subsequently order enhanced and other existing or future
products.
POTENTIAL EFFECTS OF GOVERNMENT REGULATION. At present, there are few laws
or regulations that specifically address access to or commerce on the Internet.
The increasing popularity and use of the Internet, however, enhance the risk
that the governments of the United States and other countries in which the
Company sells or expects to sell its products and systems will seek to regulate
computer telephony and the Internet with respect to, among other things, user
privacy, pricing, and the characteristics and quality of products and services.
The Company is unable to predict the impact, if any, that future legislation,
legal decisions or regulations concerning the Internet may have on its business,
financial condition or results of operations.
In March 1996, the America's Carriers Telecommunication Association (the
"ACTA"), a group of telecommunications common carriers, filed a petition (the
"ACTA Petition") with the Federal Communications Commission (the "FCC") arguing
that providers (such as the Company) of computer software products that enable
voice transmission over the Internet (Internet "telephone" services) are
operating as common carriers without complying with various regulatory
requirements and without paying certain charges required by law. The ACTA
Petition argues that the FCC has the authority to regulate both the Internet and
the providers of Internet "telephone" services and requests that the FCC declare
its authority over interstate and international telecommunications services
using the Internet, initiate rule-making 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. The FCC has thus far not granted relief sought under the ACTA
Petition, however, any action taken by the FCC to grant the relief sought by
ACTA or otherwise to regulate use of the Internet as a medium of communication,
including any action to permit local exchange carriers to impose additional
charges for connections used for Internet access, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business-Government Regulation."
UNCERTAIN ABILITY TO MANAGE RAPID GROWTH. The Company has been rapidly
expanding and expects to continue to expand its management, research and
development, testing, quality control, marketing, sales and customer service and
support operations, as well as its financial and accounting controls, all of
which has placed and is expected to continue to place a significant strain on
the Company. The Company has grown from a development staff of six persons at
December 31, 1995 to 56 employees at December 31, 1996. Failure to integrate new
personnel on a timely basis could have an adverse effect on the Company's
operations. Furthermore, the expenses associated with expanding the Company's
management team and hiring new employees have been and are being incurred prior
to the generation of any significant revenues. If the Company's management is
unable to manage growth effectively, the quality of the Company's products, its
ability to retain key personnel and its business, financial condition and
results of operations could be materially adversely affected.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. Significant annual and
quarterly fluctuations in the Company's results of operations may be caused by,
among other factors, the volume of revenues
10
<PAGE>
generated by the Company's strategic partners from sales of products and
systems incorporating the Company's technology or products, the mix of
distribution channels used by the Company, the timing of new product
announcements and releases by the Company and its competitors and general
economic conditions. There can be no assurance that the level of revenues and
profits, if any, achieved by the Company in any particular fiscal period will
not be significantly lower than in other, including comparable, fiscal periods.
The Company's expense levels are based, in part, on its expectations as to
future revenues. As a result, if future revenues are below expectations, net
income or loss may be disproportionately affected by a reduction in revenues as
any corresponding reduction in expenses may not be proportionate to the
reduction in revenues. As a result, the Company believes that period-to-
period comparisons of its results of operations may not necessarily be
meaningful and should not be relied upon as indications of future performance.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
POSSIBLE NEED FOR ADDITIONAL CAPITAL. The Company anticipates that, based
on its present plans and assumptions, the net proceeds of this Offering, when
combined with the Company's existing capital resources and anticipated revenues
from operations, will be sufficient to enable it to maintain its current and
planned operations for a period of at least 12 months after consummation of this
Offering. If the Company's estimates or assumptions prove to be incorrect, the
Company may require additional capital. Additional funding, whether obtained
through public or private debt or equity financings, or from strategic
alliances, may not be available when needed or may not be available on terms
acceptable to the Company, if at all. Additional financings may result in
dilution to existing shareholders. Failure to secure needed additional
financing, if and when needed, may have a material adverse effect on the
Company's business, financial condition, and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
CONCENTRATION OF COMMON STOCK OWNERSHIP. Upon completion of this Offering,
the directors and executive officers of the Company will beneficially own
approximately 38.9% of the Common Stock (assuming the exercise of stock options
held by such parties). Accordingly, management will have the ability to
influence significantly the Company's affairs and operations following
completion of this Offering including election of the Board of Directors. See
"Principal Shareholders."
SIGNIFICANT DILUTION TO NEW INVESTORS. Purchasers of shares of Common Stock
in the Offering will experience immediate and substantial dilution in net
tangible book value per share from the initial public offering price. Such
dilution at December 31, 1996 would have been equal to $6.62 per share (or 74%)
at an assumed initial public offering price of $9.00 per share.
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE. Prior
to this Offering, there has been no public market for the Common Stock. Although
the Company has applied for quotation of the Common Stock on the _____________ ,
there can be no assurance that an active trading market will develop or be
sustained. The initial public offering price for the Common Stock to be sold in
this Offering will be arbitrarily determined by negotiation between the Company
and the Representative, and does not necessarily bear any relationship to the
Company's asset value, net worth or other established criteria of value, and
should not be considered indicative of the actual value of the Common Stock and
may bear no relationship to the price at which the Common Stock will trade after
completion of this Offering. The market price of the Company's Common Stock is
likely to be highly volatile and could be subject to wide fluctuations in
response to quarterly variations in operating results, losses of significant
customers, announcements of technological innovations or new products by the
Company and its competitors, changes in financial estimates by securities
analysts, or other events or factors, including the risk factors described
herein. In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the market prices of equity
securities of many high technology companies and that often have been unrelated
to the operating performance of such companies. In the past, following periods
of volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such a company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which would have a material adverse effect on the
Company's business, operating results and financial condition. See
"Underwriting."
11
<PAGE>
POTENTIAL ADVERSE MARKET EFFECT OF FUTURE SALES OF COMMON STOCK. Upon
completion of this Offering, the Company will have 10,151,387 shares of Common
Stock outstanding. Of these shares, the 2,000,000 shares of Common Stock sold in
this Offering will be freely tradeable without restriction under the Securities
Act of 1933, as amended (the "Securities Act"), except any such shares which may
be acquired by an "affiliate" of the Company. Of the currently outstanding
8,151,387 shares of Common Stock (including the 452,855 shares to be issued upon
exercise of the Motorola Warrant), the holders of 6,806,658 shares have agreed
not to offer, sell or otherwise dispose of such shares for nine months after the
date of this Prospectus without the prior written consent of Josephthal. After
this period, 6,353,653 of the shares subject to this restriction will be
eligible for sale in the public market pursuant to Rule 144 under the Securities
Act, subject to the volume limitations and other restrictions contained in Rule
144. The remaining 452,855 shares of Common Stock subject to the restrictions on
sale will become eligible for public sale under Rule 144 in April 1998. Of the
shares of Common Stock not subject to the nine month restriction on sale
described above, 1,332,729 shares will be eligible for sale subject to the
volume limitations of Rule 144 commencing 90 days after the date of this
Prospectus, and the balance of 12,000 shares will become available for public
sale under Rule 144 in January 1998.
As of the date of this Prospectus, options to purchase 2,263,500 shares of
common stock and a warrant to purchase 207,679 shares of Common Stock are issued
and outstanding. In addition, the Company has granted to Motorola and Creative
certain demand and piggy-back registration rights under the Securities Act with
respect to the shares of Common Stock beneficially owned by them. Future sales
of the shares of Common Stock held by existing shareholders, or the perception
that such sales may occur, could have an adverse effect on the price of the
Common Stock. See "Certain Transactions" and "Shares Eligible for Future Sale."
ANTI-TAKEOVER EFFECT OF PROVISIONS OF ARTICLES OF INCORPORATION, BYLAWS AND
CERTAIN FLORIDA LEGISLATION. The Company's Board of Directors has the authority
to issue up to 1,000,000 shares of "blank-check" preferred stock ("Preferred
Stock"). Accordingly, shares of the Company's Preferred Stock may be issued in
the future without shareholder approval and upon such terms and conditions, and
having such rights, privileges and preferences as the Board of Directors may
determine. Such rights, privileges and preferences could include preferential
voting rights, dividend rights in excess of those provided to holders of Common
Stock, and conversion rights, redemption privileges or liquidation preferences
not available to holders of Common Stock. The rights of holders of Common Stock
will be subject to, and may be adversely affected by, the rights of holders of
any Preferred Stock that may be issued in the future. Although the Company has
no present intention to issue shares of Preferred Stock, any issuance of
Preferred Stock, while potentially providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. In addition to the foregoing, the 1995
Plan, under which immediately exercisable stock options may be granted in
certain circumstances and the requirement in the Company's Bylaws that
shareholders constituting 50% or more of all or votes entitled to be cast are
needed to call a special meeting, may also have the effect of delaying,
deferring or preventing a change in control of the Company.
In addition, Florida has enacted legislation that may deter or frustrate
takeovers of Florida corporations. The Florida Control Share Act generally
provides that shares acquired in a "control share acquisition" will not possess
any voting rights unless such voting rights are approved by a majority of the
corporation's disinterested shareholders. A "control share acquisition" is an
acquisition, directly or indirectly, by any person of ownership of, or the power
to direct the exercise of voting power with respect to, issued and outstanding
"control shares" of a publicly held Florida corporation. "Control shares" are
shares, which, except for the Florida Control Share Act, would have voting power
that, when added to all other shares owned by a person or in respect to which
such person may exercise or direct the exercise of voting power, would entitle
such person, immediately after acquisition of such shares, directly or
indirectly, alone or as a part of a group, to exercise or direct the exercise of
voting power in the election of directors within any of the following ranges:
(a) at least 20% but less than 33 1/3% of all voting power, (b) at least 33 1/3%
but less than a majority of all voting power; or (c) a majority or more of all
voting power. The Florida Affiliated Transactions Act generally requires
12
<PAGE>
supermajority approval by disinterested shareholders of certain specified
transactions between a public corporation and holders of more than 10% of the
outstanding voting shares of the corporation (or their affiliates). See
"Description of Capital Stock."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
PROSPECTUS. This Prospectus contains certain forward-looking statements
regarding the plans and objectives of management for future operations,
including plans and objectives relating to the development of the Company's
business. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based on a successful execution of the Company's business
strategy and assumptions that the Company will be profitable, that the market
for packetized voice transmission will not change materially or adversely, and
that there will be no unanticipated material adverse change in the Company's
operations or business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward- looking
statements included in this Prospectus will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
NO DIVIDENDS. The Company has not paid any dividends on its Common Stock
and anticipates for the foreseeable future that all earnings, if any, will be
retained for the operation and expansion of the Company's business. See
"Dividend Policy."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 2,000,000
shares of Common Stock offered hereby at an assumed public offering price of
$9.00 per share are estimated to be approximately $15,990,000 ($18,501,000 if
the Underwriters' over-allotment option is exercised in full), after deducting
the underwriting discount, the non-accountable expense allowance and other
estimated expenses of the Offering payable by the Company.
The Company anticipates that approximately $5,100,000 of the net proceeds
will be used for increased marketing and sales efforts, approximately $6,800,000
will be used for additional research and development efforts and approximately
$2,000,000 for capital expenditures. The balance of the net proceeds will be
used for working capital and other general corporate purposes. Furthermore, from
time to time the Company expects to evaluate possible acquisitions of or
investments in businesses, products and technologies that are complementary to
those of the Company, for which a portion of the net proceeds from this offering
may be used. While the Company engages from time to time in discussions with
respect to potential investments or acquisitions, the Company has no plans,
commitments, or agreements with respect to any such investments or acquisitions.
Pending such uses, the Company intends to invest the net proceeds of this
Offering in short-term, investment-grade, interest-bearing securities.
The Company believes that the net proceeds of this Offering, together with
its existing capital resources and anticipated revenues from operations, will be
sufficient to enable it to maintain its current and planned operations for a
period of at least 12 months after consummation of the Offering. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIVIDEND POLICY
The Company has not paid dividends on its Common Stock and does not intend
to pay dividends for the foreseeable future. The Company intends to retain
earnings, if any, to finance the development
13
<PAGE>
and expansion of its business. Payment of dividends in the future will depend
upon, among other things, the Company's ability to generate earnings, need for
capital and overall financial condition.
DILUTION
As of December 31, 1996, the net tangible book value of the Company was
$5,678,903 or $0.74 per share. Net tangible book value represents the amount of
total assets, less any intangible assets and total liabilities. After giving
effect to (i) the exercise of the Motorola Warrant and the receipt of the
exercise price of $5.50 per share therefrom and (ii) the sale of the 2,000,000
shares of Common Stock offered hereby (at an assumed initial public offering
price of $9.00 per share, and after deducting the underwriting discount, the
non-accountable expense allowance and other estimated expenses of this
Offering), the pro forma net tangible book value as of December 31, 1996 would
have been $24,159,606 or $2.38 per share. This represents an immediate increase
in net tangible book value of $1.64 per share to existing shareholders and an
immediate dilution of $6.62 per share to investors in the Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price .............................. $9.00
Net tangible book value per share at December 31, 1996 ............ $0.74
Increase attributable to exercise of Motorola Warrant ............... 0.26
Increase attributable to new investors ........................... 1.38
------
Pro forma net tangible book value per share after the offering ...... 2.38
------
Dilution to new investors(1) ....................................... $6.62
======
</TABLE>
If the Over-Allotment Option is exercised in full, the pro forma net
tangible book value per share of Common Stock after the Offering would be $2.55,
which would result in dilution to new investors in this Offering of $6.45 per
share of Common Stock.
The following table shows, at December 31, 1996, a comparison of the total
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price paid per share by existing shareholders
and to be paid by investors who purchase shares of Common Stock in the Offering
(at an assumed initial public offering price of $9.00 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------------- ------------------------------
AVERAGE PRICE
NUMBER PERCENT DOLLARS PERCENT PER SHARE
------------ ---------- -------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders ............ 7,698,532 76% $8,708,704 30% $1.13
Exercise of Motorola Warrant ...... 452,855 4% 2,490,703 8% 5.50
New Investors ..................... 2,000,000 20% 18,000,000 62% 9.00
----------- ---- ----------- ---- ------
Total(1) ........................ 10,151,387 100% $29,199,407 100%
=========== ==== =========== ====
</TABLE>
- ----------------
(1) Does not give effect to the exercise of (i) the Over-Allotment Option; (ii)
the Advisors' Warrants to purchase 200,000 shares of Common Stock,
exercisable at 120% of the public offering price per share; (iii) an
outstanding warrant to purchase 207,679 shares of Common Stock exercisable
at a price of $5.05 per share; and (iv) stock options to purchase 2,263,500
shares of Common Stock granted under the 1995 Plan at exercise prices
ranging from $1.00 to $7.00 per share.
14
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization after giving
effect to the exercise of the Motorola Warrant and the receipt of the exercise
price of $5.50 per share therefrom and (iii) the pro forma capitalization as
adjusted to give effect to the sale of 2,000,000 shares of Common Stock offered
by the Company (at an assumed initial public offering price of $9.00 per share
and after deducting the underwriting discount, the non-accountable expense
allowance and other estimated expenses of the Offering) and the receipt of the
net proceeds therefrom. The table should be read in conjunction with the
consolidated financial statements and the related notes appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------------- --------------- -------------
<S> <C> <C> <C>
Stockholders' equity:
Preferred Stock, $.01 par value, 1,000,000 shares
authorized; none outstanding, actual, pro forma, and as
adjusted...................................................... $ - $ - $ -
Common Stock, $.01 par value, 25,000,000 shares authorized;
7,698,532 shares (actual); 8,151,387 shares (pro forma);
10,151,387 shares (pro forma as adjusted) issued and
outstanding(1) ............................................. 76,985 81,514 101,514
Additional paid-in capital ................................. 9,110,105 11,596,279 27,566,279
Accumulated deficit .......................................... (3,508,187) (3,508,187) (3,508,187)
----------- ----------- -----------
Total stockholders' equity .................................. $ 5,678,903 $ 8,169,606 $24,159,606
=========== =========== ===========
</TABLE>
- ----------------
(1) Does not give effect to the exercise of (i) the Over-Allotment Option; (ii)
the Advisors' Warrants to purchase 200,000 shares of Common Stock,
exercisable at 120% of the public offering price per share; (iii) an
outstanding warrant to purchase 207,679 shares of Common Stock exercisable
at a price of $5.05 per share; and (iv) stock options to purchase 2,263,500
shares of Common Stock granted under the 1995 Plan at exercise prices
ranging from $1.00 to $7.00 per share.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected statement of operations data for the Predecessor for the
period from May 15, 1995 (Predecessor's inception) to December 18, 1995, and for
the Successor for the period from December 8, 1995 (inception) to December 31,
1995 and the year ended December 31, 1996 and the selected actual balance sheet
data of the Successor as of December 31, 1995 and 1996 set forth below have been
derived from the consolidated financial statements of the Predecessor and the
Company, which have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report, which is included elsewhere in this Prospectus. The
selected consolidated financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and notes
thereto included elsewhere in the Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
------------------ ------------------------------------
MAY 15, 1995 DECEMBER 8, 1995 YEAR ENDED
TO DECEMBER 18, TO DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------------ ------------------- --------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ....................................... $ - $ - $ 867,117
Operating expenses:
Cost of revenues .................................... - - 47,129
Research and development ........................... 175,038 28,301 2,255,644
Sales and marketing ................................. - - 722,353
General and administrative ........................ 5,644 57,200 836,791
Purchased research and development(2) ............... - 556,982 -
--------- --------- -----------
Total operating expenses ........................... 180,682 642,483 3,861,917
Loss from operations ................................. (180,682) (642,483) (2,994,800)
Interest and other income ........................... - - 172,096
--------- --------- -----------
Loss before income taxes ........................... (180,682) (642,483) (2,822,704)
Income taxes ....................................... - - 43,000
--------- --------- -----------
Net loss ............................................. $(180,682) $(642,483) $(2,865,704)
========= ========= ===========
Net loss per share ................................. $ (0.35)
===========
Shares used in computing net loss per share(3) ...... 8,217,151
===========
</TABLE>
SUCCESSOR(1)
DECEMBER 31,
-------------------------------------------
ACTUAL 1996
---------------------------
1995 1996 PRO FORMA(4)
----------- ------------- -------------
BALANCE SHEET DATA:
Cash and cash equivalents ...... $483,084 $6,294,697 $8,785,400
Working capital ............... 390,868 4,303,825 6,794,528
Total assets .................. 555,566 8,277,615 10,768,318
Shareholders' equity ......... 447,517 5,678,903 8,169,606
- ----------------
(1) NetSpeak acquired ITC by issuing 2,500,000 shares of common stock, valued at
$500,000, in exchange for all of the outstanding shares of ITC. The
acquisition was accounted for as a purchase, and the purchase price was
allocated to the assets acquired, including purchased research and
development in process, and liabilities assumed based upon their fair value
on the date of acquisition. The financial information identified herein as
for the Predecessor is for ITC for the period May 15, 1995 (inception) to
December 18, 1995, the date of its acquisition by NetSpeak. The financial
information identified herein as for the Successor is for NetSpeak
(including ITC on a consolidated basis from the date of acquisition) as of
December 31, 1995 and 1996 and for the period from December 8, 1995
(inception) to December 31, 1995 and for the year ended December 31, 1996.
(2) In connection with the acquisition of ITC purchased research and development
of $556,982 was charged to expense.
(3) See Note 1 of "Notes to Consolidated Financial Statements" for an
explanation of the determination of the number of shares and share
equivalents used in computing the per share amounts. Does not give effect to
the exercise of (i) the Over-Allotment Option; (ii) the Advisors' Warrants
to purchase 200,000 shares of Common Stock, exercisable at 120% of the
public offering price per share; and (iii) stock options to purchase
1,710,000 shares of Common Stock granted under the 1995 Plan prior to
February 1, 1996, which are not included because such options were issued
prior to the 12 months immediately preceding the Offering and the effect on
net loss per share would not be anti-dilutive.
(4) Gives effect to exercise of the Motorola Warrant and the receipt of
$2,490,703 or $5.50 per share therefrom.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company was incorporated on December 8, 1995 and acquired ITC on
December 18, 1995 by issuing 2,500,000 shares of Common Stock valued at
$500,000. ITC was incorporated on May 15, 1995 and, prior to its acquisition,
ITC's activities consisted of research and development of telephony
communications software for use on the Internet and LANs and WANs. From December
8, 1995 to December 31, 1995 the Company's operating activities related
primarily to raising initial capital and continuing ITC's research and
development. The Company released its first product in February 1996 and, for
accounting purposes, emerged from the development stage during 1996. Since
inception, the Company has raised an aggregate of $8,652,090, net of offering
costs, through private offerings of its equity securities. See "Liquidity and
Capital Resources."
The Company generates revenues from products, licenses and fees for
services provided. The Company's products are licensed primarily to telephone
companies, network service providers, corporate customers and directly to
individual client software end-users. Service revenues consist of customer
support and engineering fees.
Product and license revenues are generally recognized upon shipment,
provided that there are no significant post-delivery obligations and that
payment is due within one year. If customer acceptance is required, revenues are
recognized upon customer acceptance. Customer support revenues are recognized
over the term of the support period, which is typically one year. Engineering
fees are recognized upon customer acceptance or over the period in which
services are provided if customer acceptance is not required. All research and
development costs to date have been expensed as incurred.
The Company has only a limited operating history upon which an evaluation
of the Company and its prospects can be based. As of December 31, 1996, the
Company had an accumulated net loss of $3,508,187. The limited operating history
of the Company makes its future results of operations difficult to predict. In
addition, the Company's operating results may fluctuate significantly in the
future as a result of a variety of factors such as the introduction of new
products or services by the Company or its competitors, the amount and timing of
capital expenditures and other costs relating to the expansion of the Company's
operations, the budgeting cycles of potential customers, technical difficulties
with respect to the use of products developed by the Company and general
economic conditions. See "Risk Factors."
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996, AS COMPARED TO THE PERIOD FROM DECEMBER 8,
1995 (INCEPTION) TO DECEMBER 31, 1995 COMBINED WITH THE PREDECESSOR FOR THE
PERIOD FROM MAY 15, 1995 (PREDECESSOR'S INCEPTION) TO DECEMBER 18, 1995. UNLESS
OTHERWISE INDICATED THE DISCUSSION OF THE COMBINED AMOUNTS IS REFERRED TO AS
"1995" HEREIN.
Net revenues for the year ended December 31, 1996 were $867,117. The
Company had no revenues during 1995 when the Company's initial products were in
the process of development. Net revenues during 1996 were primarily generated
from license fees paid by individual client software end-users and license fees
received from Creative, a strategic partner of the Company, for providing it
with the right to distribute certain products using the Company's WebPhone
client software. Creative, the Company's largest customer, accounted for 44% of
total net revenues in the year ended December 31, 1996 and is expected to
continue to be a principal customer of the Company in the near future. As of
December 31, 1996, the Company had unearned revenue of $2,242,011 of which
approximately $1,500,000 represents advance payments for product licenses and
maintenance agreements, and approximately $720,000 represents the advance
payment under an agreement to provide engineering services. These agreements,
entered into with Creative, do not require any future customer acceptance. See
"Business-Strategic Alliances".
17
<PAGE>
The Company's operating expenses have increased significantly since
inception. This trend reflects the costs associated with the development of the
organization's infrastructure, rapid growth and increased efforts to
commercialize the Company's systems and products. The Company believes that
continued expansion of its operations is essential to continue the enhancement
of its existing products and to facilitate the development of new technologies,
in addition to expanding sales and marketing efforts in order to gain product
acceptance in the targeted markets. As a consequence, the Company intends to
continue to increase expenditures in all operating areas.
Cost of revenues primarily consists of direct product costs, costs of
engineering services and certain costs associated with providing customer
support. Cost of revenues were $47,129 in the year ended December 31, 1996. The
Company had no cost of revenues during 1995. Cost of revenues are anticipated to
remain relatively consistent as a percentage of net revenues as the Company's
product mix is currently comprised of software based products. Should the
Company elect to manufacture and sell certain specialized computer hardware
components which it is currently designing, cost of revenues would increase as a
percentage of sales.
Research and development expenses primarily consist of employee
compensation, computer hardware and software utilized in product development,
and equipment depreciation. Research and development expenses were $2,255,644
for the year ended December 31, 1996 and $203,339 during 1995. The increase in
research and development expenses was primarily due to increased costs
associated with developing, enhancing and expanding upon the Company's products
and systems and the expansion of the research development staff to 23 employees
at December 31, 1996. All research and development costs have been expensed as
incurred. Although research and development for the Company's initial products
and systems was substantially completed during 1996, the Company intends to
significantly increase research and development expenses in future periods to
perform product enhancements and new product development to establish and
maintain a competitive advantage. The Company currently estimates that research
and development expenditures for 1997 will be approximately $5,000,000 to
$6,000,000. In connection with the acquisition of ITC, $556,982 of purchased
research and development was charged to expense. See Note 2 to the consolidated
financial statements.
Marketing and sales expenses were $722,353 for the year ended December 31,
1996. The Company had no marketing and sales expenses during 1995. These
expenses primarily consist of employee compensation, travel expenses, trade
shows and the cost of promotional materials. Marketing and sales expenses during
1996 were the result of the creation and expansion of the Company's marketing,
sales and customer support infrastructure, which included 24 employees at
December 31, 1996 and increased expenses associated with the promotion and
marketing of the Company's products and systems. The Company intends to continue
to intensify and expand its marketing and sales effort and, as a result, intends
to significantly increase marketing and sales expenses in future periods.
General and administrative expenses were $836,791 for the year ended
December 31, 1996 and $62,844 during 1995. These expenses primarily consist of
employee compensation, professional services, and office expenses. The Company
intends to increase general and administrative expenses in future periods in
order to expand the organization's infrastructure, including the addition of
finance and administrative personnel.
Income taxes for the year ended December 31, 1996 totaled $43,000. Such
taxes were attributable to income taxes paid to the Singapore government related
to license fees received pursuant to the agreement with Creative. The Company
paid no income taxes during 1995.
As of December 31, 1996, the Company had approximately $3,254,000 of
federal and state net operating loss carryforwards which, if not utilized, will
begin to expire in 2009. Under the Tax Reform Act of 1986, the amounts of and
the benefits from net operating loss carryforwards may be impaired in certain
circumstances. Events which may cause such limitations in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of more than 50% over a three year
period. The effect of any limitation, if imposed, is not expected to be
material. As of December 31, 1996, the Company has provided a valuation
allowance for the full amount of the deferred tax asset resulting from the net
operating loss carryforwards due to the uncertainty as to the utilization of the
net operating loss carryforwards, primarily as a result of
18
<PAGE>
considering such factors as the Company's limited operating history and the
operating losses incurred to date. See Note 7 to the consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had $6,294,697 in cash and cash
equivalents. The Company does not currently have any available lines of credit.
Since inception, the Company has financed its operations through the sale of
equity securities in private transactions as described below.
Net cash of $1,033,643 was used in operating activities during the year
ended December 31, 1996 and was primarily attributable to research and
development and building the corporate infrastructure, partially offset by
unearned revenue of $2,242,011 resulting from fees paid in advance for licensed
goods and engineering services not yet shipped and performed, respectively.
Included in accounts receivable at December 31, 1996 is $300,000 related to
license fees from Creative. Net cash used in investing activities during the
year ended December 31, 1996 was $1,216,834 and primarily related to purchases
of computer equipment.
Net cash provided by financing activities for the year ended December 31,
1996 was $8,062,090 and was attributable to private offerings of equity
securities.
In January and February of 1996, the Company sold 1,204,000 shares of
Common Stock at $2.50 per share in a private offering raising $2,992,028, net of
offering costs. In January 1996, the Company issued stock options under the 1995
Plan to purchase 250,000 shares of Common Stock for $2.50 per share to a
consulting firm, which assisted the Company with its private offering.
In June 1996, the Company issued 207,679 shares of Common Stock to Creative
at a price of $5.05 per share raising $943,698, net of offering costs. The
Company also issued Creative an eighteen-month warrant to purchase up to an
additional 207,679 shares of Common Stock at a price of $5.05 per share, which
warrant is only exercisable if Creative distributes, during a specified period,
a predetermined quantity of the Company's Internet telephone client software
product licensed to Creative.
In August 1996, the Company issued 769,853 shares of Common Stock and the
Motorola Warrant to purchase up to an additional 452,855 shares of Common Stock
at a price of $5.50 per share for a six year period expiring in August 2002 to
Motorola raising $3,993,864, net of offering costs. In the event the Company
consummates the Offering or any other underwritten public offering of its Common
Stock at a price of at least $7.00 per share resulting in the receipt by the
Company of net proceeds of not less than $10,000,000, the Company, at its
option, upon not less than 20 business days notice given prior to the planned
closing date of such public offering, may require Motorola to exercise the
Motorola Warrant, provided, however, that within 15 business days of receipt of
the Company's notice, Motorola may elect to cancel the Motorola Warrant
unexercised. Motorola has advised the Company that it will exercise the Motorola
Warrant in full upon consummation of this Offering, provided that the Offering
meets the criteria set forth above.
The Company has no material commitments other than those under office and
equipment leases. During the 12 months after consummation of this Offering, the
Company expects to incur approximately $2,000,000 in capital expenditures
consisting primarily of computer-related equipment. The Company anticipates
that, based on its present plans and assumptions, the net proceeds of the
Offering combined with the Company's existing capital resources and anticipated
revenues from operations will be sufficient to enable it to maintain its current
and planned operations for a period of at least 12 months after consummation of
the Offering. If the Company's estimates or assumptions prove to be incorrect,
the Company may require additional capital. Additional funding, whether obtained
through public or private debt or equity financing, or from strategic alliances,
may not be available when needed or may not be available on terms acceptable to
the Company. Additional financings may result in dilution to existing
shareholders. Failure to secure needed additional financing, if and when needed,
may have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors-Possible Need for
Additional Capital."
19
<PAGE>
BUSINESS
OVERVIEW
NetSpeak develops, markets, licenses, and supports a suite of intelligent
software modules which enable real-time, concurrent interactive voice, video and
data transmission over a packetized data network such as the Internet, LANs and
WANs. The Company believes that its technology is strategically positioned to
capitalize on the rudimentary shift in corporate telecommunications philosophy
as businesses seek to expand the functionality of their communication systems as
well as optimize their use of packetized data networks. Netspeak is currently
marketing a user-friendly core communications technology which enables, in a
cost-effective manner, corporations and other users to enhance the role of their
packetized data networks to support concurrent voice, video and data
transmission. NetSpeak believes that as potential users become increasingly
educated as to the benefits of integrating the two networks, significant revenue
opportunities for the Company will be generated.
The Company's software uses patent-pending intelligent virtual circuit
switching technology to provide gateways between packetized data networks and
traditional voice transmission networks. The technology allows users to
integrate into packetized data networks a variety of features and functions
commonly found in traditional voice transmission networks, including ACD,
multi-point conferencing, interactive voice response services, messaging
services and least cost routing, as well as to expand network functionality by
offering additional features such as concurrent voice and data transmission and
video conferencing. The Company's patent-pending intelligent virtual circuit
switching technology provides intelligent call routing to enable users to
transparently communicate with each other on a point-to-point basis. The Company
believes that its products and systems are designed to allow customers to
integrate NetSpeak's technology into their existing network infrastructures
without the need for significant upgrading, and can ultimately provide a
complete software-based solution for the delivery of concurrent real-time
interactive voice, video and data communications over packetized data networks.
In order to facilitate and accelerate the acceptance of NetSpeak's
technology as well as enhance the marketing and distribution of its products and
systems, the Company has established a number of strategic alliances with
various telecommunications and computer industry leaders. Under certain of these
agreements, either the Company's technology is integrated into products which
are marketed by its strategic partners or the Company's products and systems are
marketed and distributed by its strategic partners through the various
distribution channels. The Company believes that these strategic alliances also
offer access to its strategic partners' leading edge technologies, as well as
insights into market trends and product development.
In August 1996, the Company established a strategic alliance with Motorola
pursuant to which Motorola made a minority investment in the Company and the
Company granted Motorola a right of first negotiation on licenses of the
Company's technology as it applies to the cellular, cable and wireless
communications industries. Motorola, through its affiliates, is also conducting
a test trial of a system which uses the Company's products and systems and those
of Motorola.
Beginning in June 1996, the Company also entered into a strategic alliance
with Creative, a world leader in the manufacture and distribution of audio cards
and multimedia computer peripherals. Pursuant to such alliance, Creative made a
minority investment in the Company. NetSpeak granted Creative a world-wide
license to market, distribute and bundle NetSpeak's WebPhone client (or end-
user) software under the Creative brand name in the retail distribution channel
and the Company and Creative are jointly developing various other
Internet-related software applications which use the Company's and Creative's
proprietary technologies, in such areas as multimedia applications for IP based
networks.
In August, 1996, the Company established a strategic alliance with
Rockwell, an industry leader in medium and high-end ACD systems. As part of this
alliance, the Company's gateway products and
20
<PAGE>
ACD systems are being integrated into Rockwell's ACD systems. Beginning in
November 1996, the Company entered into a strategic alliance with Infonet, one
of the largest commercial data network carriers in the world. Pursuant to such
alliance, the Company will integrate its technology with Infonet's existing
global data network, in order to enhance Infonet's packetized data network for
voice transmission. The Company intends to seek to establish additional
strategic alliances.
In addition to marketing its technology products and systems with its
strategic partners, NetSpeak has begun to market its products directly to
end-users, including telephone companies, cable companies, and other common
carriers, large business enterprises, ACD manufacturers and other OEMs,
governmental and educational entities, as well as to distributors, such as SIs
and VARs. To date, such marketing efforts have been limited to direct contacts
with a number of these customers. NetSpeak is also marketing its WebPhone client
software products over the Internet, by advertising in computer periodicals and
through distribution agreements with over 700 ISPs worldwide. The Company is
currently developing an in-house marketing and sales infrastructure.
The Company's strategy is to become an industry leader in providing
business solutions for concurrent real-time interactive voice, video and data
transmission over packetized data networks. The Company intends to achieve its
goal by (i) establishing strategic alliances to facilitate technological
acceptance and enhance the marketing and distribution of its products and
systems; (ii) expanding its internal marketing and sales efforts; and (iii)
continuing research and development to enhance existing product applications and
develop new applications.
INDUSTRY BACKGROUND
Two fundamentally different switching technologies exist that enable
digital communications: circuit switching and packet switching. Since the
differing performance requirements for voice transmission and data transmission
impose different design priorities, historical development of voice
communication systems such as the telephone, and its related business systems,
such as a corporate business telephone system ("PBX") and ACD, has centered on
circuit switching technology, while that of data communications systems such as
LANs and WANs and the Internet have primarily relied upon packet switching
technology. As a result, separate cultures and networking fabrics have evolved
for the design, development, application, and support for real-time voice
communications (circuit switched networks) and non real-time data transmission
(packetized data networks).
High quality, real-time interactive voice communications must emulate a
reasonable approximation of a face to face conversation between two
geographically separated people. To accomplish this, the modulated signal
representing the spoken words must (i) have enough information to re-create a
recognizable voice by using a fixed bandwidth, (ii) be delivered with minimum
delay by using a dedicated path in order not to impede interactive
communications, (iii) be delivered at a constant rate in order to avoid
distortion to the ear of the listener and (iv) not be subject to significant
loss of information en route. These capabilities are inherent in circuit
switched networks such as the public switching telephone network (the "PSTN")
but must be created when using packetized data networks for voice transmission.
The design of private Intranets such as LANs and WANs, and that of the
Internet generally is fundamentally different from the architecture of
conventional voice transmission networks. Each of these packetized data networks
breaks down data into a series of small, discrete packets for transmission. Each
packet of data travels independently through the network to the destination
address where application software reassembles the packets to recreate the
original data set. As currently designed, packetized data networks handle
congestion by discarding or delaying packets or by sending packets from the same
source along different pathways, which can result in packets which were sent in
sequence arriving out of order. If the transmitted data packet represents
real-time voice, the listener may perceive a gap or "choppiness" as a result of
missing, late-arriving or out-of-sequence packets.
As the work environment increasingly demands faster access to greater
volumes of information from multiple sources, the individual capabilities of
separate circuit switched and packetized data
21
<PAGE>
networks are being seriously challenged. The response from circuit switch
manufacturers has been the development of new switching system architectures
that make it easier for separate, application-specific software to control the
circuit switching function, and to seek to maintain the market value of circuit
switched systems by increasingly using voice applications processes to offer
additional services such as voice mail, interactive voice response and ACD. The
intensity of technical activity involved in further integrating the interaction
of specific application processes and information delivery systems has given
computer telephony integration the status of a technology in its own right.
A growing number of businesses and other organizations have recognized the
Internet as a network which enables an enhanced form of public communication. In
order to create conditions amenable to satisfactory commerce and business
communications on the Internet, the same kinds of services offered in
communicating with customers via traditional voice transmission networks such as
the PSTN must be available when communicating with customers via the Internet.
The Internet represents primarily an access to potential markets that
cannot be efficiently exploited if a separate, parallel infrastructure is
required for its service. Its evolution, however, has supported the development
of technologies such as those of NetSpeak that have made feasible the
integration of the two different architectures of circuit switched and
packetized data networks in such a way that communications between the two are
meaningful, and such that each can selectively take advantage of the special
capabilities of the other.
There are many applications currently utilizing traditional telephony that
could benefit from various of the capabilities available from data
communications networks such as contemporaneous transmission of data and voice
over a single system. The general difficulty in adapting some of these
capabilities to the circuit switching environment lies in the limited expertise
of those in the traditional telephony environment in developing and applying the
desired adaptations on the one hand, and the limited systems and application
expertise necessary for those in the packetized data network environment to
recognize the problems, understand the opportunities, or design appropriate
solutions on the other.
The introduction and rapid development of IP technology revolutionized the
deployment and use of data communications networks such as the Internet. Even
though this technology is in its infancy, it is already creating a growing
demand for the integration of features and functions available in traditional
voice communications networks into the packetized data network environment.
NETSPEAK'S CORE COMMUNICATIONS TECHNOLOGY
NetSpeak has developed a core communications technology which addresses the
challenges associated with real-time interactive voice transmission over
packetized data networks. NetSpeak's technology surmounts the difficulties
inherent in real-time interactive voice transmissions in the packetized data
network environment and permits the integration into this environment of
features commonly found in traditional voice transmission networks, as well as
enabling the concurrent voice, video and data transmission over packetized data
networks, thereby expanding the functionality of packetized data networks. For
example, NetSpeak's core communications technology will permit a call placed
over the Internet to the service department of a customer to be transferred from
the Internet to the customer's LAN, route the call to the next available service
agent, provide the service agent with information regarding the call and
transfer the call to the customer's PBX for answer by the service agent.
NetSpeak's technology also facilitates the concurrent transmission of voice and
data over a packetized data network. NetSpeak's core communications technology
is the platform utilized in all of its products and systems. Among other
features and functions, NetSpeak's core communications technology:
/bullet/ permits encrypted, two-way voice transmission. NetSpeak's software
manages different types of information streams, using different
priorities, to optimize use of available bandwidth capacity, while
providing the most sensitive applications such as voice transmission
with first priority to
22
<PAGE>
that capacity, thereby minimizing the choppiness typically
associated with voice transmission over packetized data networks.
Encryption allows for secure communications even over packetized
data networks, such as the Internet;
/bullet/ allows users to connect to other users in a point-to-point fashion,
rather than through an intermediate routing mechanism. NetSpeak's
intelligent virtual switching technology implements a patent-pending
technique for address resolution which translates circuit switching
addresses to IP network addresses, thereby eliminating the need to
know an end-user's packetized network address;
/bullet/ provides dynamic and fixed IP address mixing which can create
networks that carry traffic from both fixed-address networks such as
a LAN and dynamically-assigned address networks such as the Internet
to form a seamless communications network (a "network of networks")
infrastructure. This infrastructure can operate over any physical
network that support the IP protocol;
/bullet/ uses a common object-oriented code base that allows the technology
to be integrated into other Netspeak and third party products;
/bullet/ operates on multiple operating systems and can be ported to various
operating platforms; and
/bullet/ can be embedded in firmware, including portable and handheld
devices.
NetSpeak is conducting ongoing research and development to further enhance
its core technology, such as developing the plug-and-play processes that allow
for the addition of new software components such as voice and video codecs,
encryption "engines", animation controllers, user interfaces and communications
protocols, and providing dynamic swapping of these components.
NETSPEAK'S STRATEGY
The Company's goal is to use its core communications technology to become
an industry leader in providing business solutions for concurrent real-time
interactive voice transmission over packetized data networks while seemlessly
integrating the features and functions of existing voice transmission networks
into the packetized data networking environment. The Company's strategy includes
the following key elements:
ESTABLISH STRATEGIC ALLIANCES TO FACILITATE TECHNOLOGICAL ACCEPTANCE
In order to facilitate and accelerate the acceptance of NetSpeak's
technology, as well as enhance marketing and distribution of its products and
systems, the Company has established a number of strategic alliances with
various telecommunications and computer industry leaders. Pursuant to certain of
these agreements, either the Company's technology is integrated into products
which are marketed by its strategic partners or the Company' s products and
systems are marketed and distributed by its strategic partners through various
distribution channels. The Company believes that these strategic alliances also
offer access to its partners' leading edge technologies. To date, the Company
has established strategic alliances with Motorola, Creative, Rockwell and
Infonet and intends to seek to establish additional strategic alliances.
EXPAND INTERNAL MARKETING AND SALES EFFORTS
The Company has recently hired a Vice President of Marketing to develop an
infrastructure to facilitate distribution of the Company's technology, products
and services. The Company is presently developing an in-house sales force and
expanding its direct marketing and sales efforts to end-users, including
telephone companies, cable companies and other common carriers, large business
enterprises, ACD manufacturers and other OEMs, and governmental and educational
entities, as well as to SIs, VARs and other distributors.
23
<PAGE>
EDUCATE THE MARKETPLACE
Given the historical use of different infrastructures for voice and data
transmission, NetSpeak believes that it needs to educate its potential customer
base on how its core communications technology can facilitate the consolidation
of these infrastructures by integrating capabilities and features commonly found
in traditional voice transmission networks into the packetized data network
environment. The Company intends to expand the number of marketing programs it
conducts in this regard, including advertising in trade journals and similar
media, attendance at industry trade shows and direct mail campaigns. In
addition, the Company has been and continues to be involved in industry wide
standard setting bodies, such as the Massachusetts Institute of Technology's
("MIT") ITC (Internet Telephony Interoperability Consortium) consortium, VoIP
(Voice on IP) forum, IMTC (Interoperable Multimedia Teleconference), and VON
(Voice on the Net) Coalition.
CONTINUE RESEARCH AND DEVELOPMENT
The Company intends to extend the functionality and uses of its core
communications technology by continuing to invest in research and development.
The Company believes that it can further improve its technology which will allow
it to enhance its existing product applications as well as develop new
applications.
PRODUCTS AND SYSTEMS
NetSpeak's products and systems consist of four principal groups: gateway
products, business systems, server software and client (or end-user) software
products. NetSpeak's products and systems combine its various intelligent
software modules to provide applications that furnish each particular product's
desired features and functions.
GATEWAY PRODUCTS
Gateway products are designed as transition points between two different
network types, such as between the PSTN and the Internet. Gateway products
convert regular voice transmission to or from the compressed data packets that
travel over packetized data networks. Gateway products can be used to bring
packetized voice transmission into existing voice transmission networks such as
a PBX or translate voice from the voice transmission network to a user's
Intranet.
WebPhone Gateway eXchange ("WGX") is NetSpeak's initial gateway product.
NetSpeak has developed two versions of the WGX, which differ primarily in the
types of interfaces they provide to the PSTN, the manner in which voice
compression is performed, and the maximum number of simultaneously supported
connection ports. The initial version of the WGX, the WGX-M, is PC-based,
provides standard analog interfaces to the PSTN network and is offered in sizes
up to 16 voice channels (ports). A second version, the WGX-MD, is PC-based,
provides digital T1 interface to the PSTN network, and is offered in sizes up to
24 ports. NetSpeak is also developing the WGX-L series. This series is based on
a NetSpeak proprietary hardware design which will provide digital T1 interfaces
to the voice network and will be offered in sizes up to 96 ports. The WGX-L
series will be designed to meet stringent central office requirements for
telephone company networks and offer a number of other systems management and
remote operations, administration and maintenance features.
BUSINESS SYSTEMS
NetSpeak's business systems consist of two product subgroups: call center
systems and PBX systems.
CALL CENTER SYSTEMS. Call center systems are generally used by customer
service departments within corporations for a wide variety of communications
functions, such as sales, service and technical support between such companies
and their customers. Call center systems route calls to individual
24
<PAGE>
customer service agents based on factors such as agent skills or agent call
volume, and provide the agents with information about incoming calls in order to
facilitate customer interaction. In NetSpeak's call center systems, agents
answer calls by using NetSpeak's Agent WebPhone client software products that
are running in their individual PCs. Call center systems are high-visibility,
traffic intensive application environments, and therefore are usually much
higher in cost than simple business telephone systems. NetSpeak's call center
systems can be integrated with existing ACDs to provide voice transmission over
a customer's existing packetized data network without the need for significant
upgrading of the network infrastructure and ultimately can provide a customer
with a software-based solution to its call center requirements.
NetSpeak's call center systems consist of:
The WebPhone Automatic Call Distributor-Internet Attachment is the basic
component of this system and allows a user to integrate Internet-based telephony
with its existing circuit switched ACD. This system enables a call center agent
to know to which incoming-line on the existing ACD a specific Internet voice
call has been directed and forwards certain information to the next available
agent. With this information, the agent can use the NetSpeak's WebPhone client
software product running in its local PC to retrieve additional information
about the incoming caller. This capability provides more information about the
caller than existing circuit switched ACDs.
The WebPhone Virtual ACD allows a customer to construct a call center
entirely in a packetized data network environment utilizing only a PC as the
call center agent's user interface. The system allows for transmission of voice
and video based calls.
The WebPhone Enterprise ACD is a tool for facilitating the development of
the next generation of call centers. It integrates the capabilities of the
WebPhone Virtual-ACD with the power of WGX for translating calls from the PSTN
and converting them to packetized voice for distribution to an agent's PC. As a
result, all caller traffic arrives at the agent's desktop as packetized voice,
whether originated over the Internet, the user's Intranet or the PSTN, and all
caller information is presented to the agent in a uniform format.
In addition, the Company is developing the WebPhone ACD-CTx. This system
will offer customized computer telephony interfaces between NetSpeak's WGX and
the customer's existing circuit switched ACD. ACDs, including most telephone
company Centrex-based ACD service offerings, require a specialized CTx interface
to integrate a NetSpeak system. The WebPhone ACD-CTx will preserve the existing
integral skills-based routing and other ACD vendor-specific value-added
functions, while integrating IP-delivered calls with regular PSTN calls.
PBX SYSTEMS. PBX Systems are the basic business telephone systems which
service multiple users in an organization where employees need to communicate
with each other, as well as with persons outside the organization. NetSpeak's
PBX systems provide existing circuit switch PBX systems the ability to
communicate with NetSpeak WebPhone client software anywhere on a packetized data
network by bringing voice traffic from the PSTN into a NetSpeak PBX-based
system, and carrying all voice, video and data communication to every user in a
common packetized digital format.
NetSpeak's PBX systems currently consist of:
The WebPhone Virtual PBX allows a business to construct an in-house voice
network which delivers packetized voice to every PC. All calls between users are
carried over the packetized data network and there is no need to install and
maintain separate voice network wiring or separate databases of information
relative to individual users and their locations.
The WebPhone Enterprise PBX combines the WebPhone Virtual PBX and WGX to
create an integrated system that allows voice traffic coming from the PSTN, as
well as voice traffic coming from packetized data networks, to be integrated and
delivered over the customer's existing network infrastructure to individual
end-users logged on to NetSpeak's WebPhone client software products.
25
<PAGE>
SERVER SOFTWARE
All key NetSpeak software (i) controls the connection process between
users, (ii) manages network operations, (iii) coordinates billing, (iv) provides
value-added features and functions to the users and (v) is designed to run on
PCs or larger workstation-type systems utilizing the Microsoft Windows NT
operating system. Since many networks need high levels of reliability, such as
common carrier networks, NetSpeak has incorporated certain contingency features
into its software such as enabling its server software to permit multiple copies
to run concurrently on the same network.
NetSpeak's various software modules can be combined to construct various
types of voice transmission networks. These software modules include the Global
Information Server, which is responsible for finding the destination party and
coordinating the connection between users; the Control Center module, which is
the management control software for all of NetSpeak's products; the DataBase
Services module, which acts as an "event management utility" for distributing
activity messages relating to billing and other operations events; and the ACD
Server module, which is the key to NetSpeak's call center systems. A variety of
other support modules are under development, including the Credit Processing
Server, that is used for real-time collection and customer account management
and an Interactive Voice Response Server module which will guide a caller
through a series of information steps.
CLIENT SOFTWARE PRODUCTS
NetSpeak's client or end-user software products include the standard
NetSpeak WebPhone, NetSpeak's Internet telephone software product, which was the
first NetSpeak client product on the market. WebPhone, winner of PC Magazines'
Editor's Choice (October 8, 1996) award, is the basis of all other NetSpeak
client software products including the Business WebPhone and the Agent WebPhone,
which are key components of NetSpeak's PBX and call center systems. NetSpeak's
other client software products include the Mini-WebPhone, a minimum-function
telephone which can be quickly downloaded by the end-users of a NetSpeak ACD
system and the Virtual WebPhone, which is integrated into the NetSpeak WGX and
is responsible for maintaining the connection with other WebPhones. In order to
maximize the amount of caller information provided to agents, the Company is
developing additional agent software which is designed to be used in conjunction
with NetSpeak's call center systems.
STRATEGIC ALLIANCES
In order to facilitate and accelerate the acceptance of NetSpeak technology
as well as enhance the marketing and distribution of its products and systems,
the Company has established a number of strategic alliances with various
telecommunications and computer industry leaders. Under certain of these
agreements, either the Company's technology is integrated into products which
are marketed by its strategic partners or the Company's products and systems are
marketed and distributed by its strategic partners through the various
distribution channels currently utilized by such partners. The Company believes
that these strategic alliances also offer access to its partners' leading edge
technologies, as well as insights into market trends and product development.
The Company intends to seek additional strategic alliances. Companies with which
NetSpeak is currently participating in a strategic alliance include:
MOTOROLA
In August 1996, the Company established a strategic alliance with Motorola,
as part of which Motorola made a minority investment in the Company. In
connection with the investment by Motorola, the Company granted to Motorola a
right of first negotiation on licenses of NetSpeak's technology as it applies to
the cellular, cable and wireless communications industries. A designee of
Motorola serves on the Company's Board of Directors. See "Management-Directors
and Executive Officers" and "Certain Transactions".
26
<PAGE>
Motorola has become a customer of the Company, and through its affiliates
is conducting a test trial of a system that uses the Company's products and
systems and those of Motorola.
CREATIVE
Beginning in June 1996, the Company entered into a strategic alliance with
Creative, producer of the Sound Blaster family of products and one of the
world's leaders in the manufacture and distribution of audio cards and
multimedia computer peripherals. Pursuant to the agreements between NetSpeak and
Creative, Creative made a minority investment in the Company and the Company
granted Creative a worldwide license to market, distribute and bundle an
Internet telephone based on the Company's WebPhone client software product under
the Creative brand name in the retail distribution channel. The Company received
a fixed license fee upon execution of the agreement and will receive a fixed
royalty for each copy of the full version Internet telephone software products
sold at retail by Creative. NetSpeak and Creative subsequently expanded their
relationship to include a license granted on a royalty-free basis by Creative to
NetSpeak for Creative's video codec technology for a period to be coterminous
with the WebPhone technology license which was granted to Creative by the
Company. NetSpeak and Creative are also jointly developing other
Internet-related applications which use both the Company's and Creative's
proprietary technology in such areas as multimedia applications for IP based
networks.
ROCKWELL
In August 1996, the Company established a strategic alliance with Rockwell,
an industry leader in medium to high end ACD systems. As part of this alliance,
the Company's gateway products and ACD systems are being integrated into
Rockwell ACD systems. The integration of NetSpeak's technology into Rockwell ACD
systems will enable call center agents to receive real-time voice and data
information transmitted from customers' voice-enabled web pages. NetSpeak and
Rockwell are cooperating on the marketing of these systems and both companies
have agreed to explore the joint development of a software solution for the
low-end ACD market.
INFONET
Beginning in November 1996, the Company entered into a strategic alliance
with Infonet, one of the largest commercial data network carriers in the world.
Pursuant to such alliance, the Company will integrate its technology with
Infonet's existing global data network to enhance concurrent voice and data
transmission over the network. In addition, Infonet has and is expected to
continue to purchase the Company's products in connection with the ongoing
operation of its voice enabled data network.
MARKETING AND SALES
The principal target market for NetSpeak's products and systems encompasses
a wide variety of end-users, such as telephone companies, cable companies and
other common carriers, large business entities, ACD manufacturers and other
OEMS, and governmental and educational entities, as well as SIs, VARs and other
distributors.
In addition to marketing its products and systems with its strategic
partners, NetSpeak has begun to market its products directly to end-users and
distributors. To date, such marketing efforts primarily have been limited to
direct contacts with a number of these customers. NetSpeak is also marketing its
WebPhone client software products over the Internet, by advertising in computer
periodicals, and through distribution agreements with over 700 ISPs worldwide.
The Company has recently hired a Vice President of Marketing to develop an
infrastructure to facilitate distribution of the Company's technology, products
and production systems. NetSpeak is developing an in-house sales force in order
to focus its sales efforts on direct sales to end-users and distributors. The
Company anticipates that its sales force will consist of between ten and 15
people by
27
<PAGE>
the end of 1997. NetSpeak intends to divide its in-house sales force into
groups, each of which will focus on one or more categories of potential
customers. In addition to direct contact with potential customers, in-house
marketing and sales efforts will include direct mail, advertising, and other
marketing campaigns and attendance at industry trade shows, which in addition to
generating sales, are intended to educate potential customers as to the
features, functionality, cost effectiveness and other benefits of NetSpeak's
technology, products and systems. In addition, the Company's site on the World
Wide Web will permit prospective customers to obtain information about its
products and services, download software for evaluation and order certain
products. The Company intends to continue to intensify and expand its marketing
and sales efforts and, as a result, intends to significantly increase marketing
and sales expenses in future periods.
CUSTOMER SERVICE AND SUPPORT
NetSpeak is committed to maintaining customer satisfaction and loyalty. As
of December 31, 1996, NetSpeak employed 18 technical representatives to support
and service its customer base. The Company intends to hire additional technical
customer representatives to support the expected increase in its installed base
for its business products, such as gateway products and business systems. The
Company also provides back-up support with respect to NetSpeak technology,
products and systems marketed by its strategic partners.
The Company maintains a technical support hotline to answer customer
inquiries and provides an on-line database of technical product information. The
Company's support staff also responds to e-mail inquiries and monitors several
e-mail mailing lists. Customer support specialists diagnose and solve technical
problems related not only to the Company's products and systems but also to
other hardware and software with which the Company's products and systems may be
integrated. The Company tracks all support requests, through a series of
customer databases, including current status reports and historical customer
interaction logs. The Company uses customer feedback as a source of ideas for
product application improvements and enhancements.
The Company intends to provide maintenance for all of its business systems
through a program of periodic technical upgrades. The price of a NetSpeak
business system includes 90 days of maintenance service. For a fee, the Company
will provide extended maintenance services to its business systems customers and
to certain volume purchasers of its client software products.
RESEARCH AND DEVELOPMENT
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards, and frequent new product introductions.
Management believes that the Company's future success depends in large part upon
its ability to continue to enhance the functionality and uses of its core
technology. The Company believes that it can further improve its technology
which will allow it to enhance its existing products applications as well as
develop new applications.
The Company intends to be involved in the review and establishment of
industry standards by actively participating in standard setting bodies such as
MIT's ITC (Internet Telephony Interoperability Consortium) consortium, VoIP
(Voice on IP) Forum, IMTC (Interoperable Multimedia Teleconference) and VON
(Voice on the Net) Coalition.
The Company currently conducts the majority of its product development
efforts in-house. The Company also employs independent contractors, to a limited
degree, to assist with certain product development and testing activities and
intends to work with its strategic partners with a view to enhancing its
products. The Company has aggressively expanded its Research and Development
group from six software engineers as of December 31, 1995 to 23 software
engineers and support staff as of December 31, 1996. In 1996 and 1995 the
Company's research and development expenditures were approximately $2.3 million
and $200,000 respectively. All of the Company's research and development costs
have been expensed as incurred, including purchased research and development of
$556,982 in
28
<PAGE>
connection with the acquisition of ITC. The Company intends to significantly
increase research and development expenses in future periods to perform product
enhancements and new product development in order to seek to establish and
maintain a competitive advantage. In connection therewith, the Company
anticipates increasing its research and development staff by approximately 15 to
20 people during 1997.
COMPETITION
The Company is unaware of any other company which competes directly with
the entire spectrum of products and systems it offers. The Company does,
however, face competition for each of its individual products and systems. The
Company competes with companies such as Vienna Systems, Lucent, VocalTec and
Dialogic with respect to its gateway products. Principal competitors for
NetSpeak's software-based business systems include companies such as Lucent. In
the market for client software products, the Company competes with VocalTec,
Microsoft and Intel, among others.
The Company believes that the principal competitive factors affecting its
potential success include development; time-to-market; product features, such as
flexibility, scalability, interoperability, functionality and ease of use; as
well as product/vendor reputation, quality, performance, price, customer service
and support, and the overall effectiveness of its sales and marketing efforts.
The Company may also face further competition in all market segments from
companies in the telecommunications and computer industries which decide to
develop and market competitive technology, products or systems. Many of the
Company's current and potential competitors have longer operating histories,
greater name recognition, larger customer bases and significantly greater
financial, technical and marketing resources than the Company. In addition, the
Company competes with manufacturers of hardware-based business systems. Certain
of these competitors may be existing or potential strategic partners.
GOVERNMENT REGULATION
At present, there are few laws or regulations that specifically address
access to or commerce on the Internet. The increasing popularity and use of the
Internet, however, enhance the risk that the governments of the United States
and other countries in which the Company sells or expects to sell its products
will seek to regulate computer telephony and the Internet with respect to, among
other things, user privacy, pricing, and the characteristics and quality of
products and services. The Company is unable to predict the impact, if any, that
future legislation, legal decisions or regulations may have on its business,
financial condition or results of operations.
In March 1996, the ACTA, a group of telecommunications common carriers,
filed the ACTA Petition with the FCC arguing that providers (such as the
Company) of computer software products that enable voice transmission over the
Internet (Internet "telephone" services) are operating as common carriers
without complying with various regulatory requirements and without paying
certain charges required by law. The ACTA Petition argues that the FCC has the
authority to regulate both the Internet and the providers of Internet
"telephone" services and requests that the FCC declare its authority over
interstate and international telecommunications services using the Internet,
initiate rule-making 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.
Any action by the FCC to grant the relief sough by ACTA or otherwise to regulate
use of the Internet as a medium of communication, including any action to permit
local exchange carriers to impose additional charges for connections used for
Internet access, could have a material adverse effect on the Company's business,
financial condition and results of operations.
PATENTS AND PROPRIETARY RIGHTS
The Company generally relies upon patent, copyright, trademark and trade
secret laws to protect and maintain its proprietary rights for its technology
and products. The Company has filed ten U.S.
29
<PAGE>
utility patent applications, seven U.S. provisional patent applications and one
Patent Cooperation Treaty patent application relating to various aspects of the
WebPhone client and server software, the virtual circuit switching technology,
and techniques for resolving dynamically assigned Internet Protocol addresses.
Several additional patent applications are currently being prepared. The Company
expects to routinely file patent applications, as deemed appropriate to protect
its technology and products.
Elk Industries has asserted, in a letter to NetSpeak, just prior to the
November 1996 expiration of U.S. Patent No. 4,128,773, owned by Elk Industries,
that the Company's WebPhone client software product infringed the now expired
patent. Given the initial distribution of the Company's WebPhone client software
prior to expiration of the asserted patent, the Company believes any potential
liability related to the allegation is not significant.
Generally, litigation, which could be costly and time consuming, may be
necessary to determine the scope and validity of others' proprietary rights, or
to enforce any patents issued to the Company, in either case, in judicial or
administrative proceedings. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third-parties, or require the Company to cease product sales and possibly
alter the design of the products. There can be no assurance that any licenses
required under any third-party patents or proprietary rights would be made
available on acceptable terms, if at all. In addition, the laws of certain
countries may not protect the Company's intellectual property.
To help protect its rights, the Company currently requires employees,
consultants and strategic partners to enter into confidentiality agreements that
prohibit disclosure of the Company's proprietary information. The Company also
currently requires employees and consultants to assign to it their ideas,
developments, discoveries and inventions.
NetSpeak has entered into an agreement with one customer requiring the
Company to place its source code in escrow. This agreement provides that the
customer will have a limited, non-exclusive right to use such code in the event
that there is a bankruptcy proceeding by or against the Company, if the Company
ceases to do business or if the Company fails to meet its support obligations.
The Company may enter into similar agreements in the future which may increase
the likelihood of misappropriation by third parties.
EMPLOYEES
As of March 15, 1997, the Company employed 59 persons, including 45 in
engineering and support and 14 in sales, marketing and administration. The
Company anticipates increasing its research and development staff by
approximately 15 to 20 people during 1997. The Company considers its relations
with its employees to be satisfactory.
Competition for technical personnel in the Company's industry is intense.
The Company believes that it has been successful in recruiting qualified
employees, but there is no assurance that it will continue to be as successful
in the future. The Company believes that its future success depends in part on
its continued ability to hire, assimilate and retain qualified personnel.
FACILITIES
The Company occupies approximately 10,000 square feet of space in Boca
Raton, Florida, which it leases at an annual rental of $132,565. The initial
term of the lease for the Company's facility expires on January 30, 2000. The
Company believes that existing facilities are adequate for its needs through at
least the end of 1997. Should the Company require additional space at that time
or prior thereto, it believes that such space can be secured on commercially
reasonable terms and without undue operational disruption.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
30
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is certain information concerning the directors and
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- ------ ----------------------------------------------------
<S> <C> <C>
Stephen R. Cohen ......... 54 Chairman of the Board and Chief Executive Officer
Robert Kennedy ............ 48 President, Chief Operating Officer and Director
Shane D. Mattaway ......... 40 Executive Vice President, Chief Technical Officer
and Director
John W. Staten ............ 30 Chief Financial Officer and Assistant Secretary
Steven F. Mills ......... 42 Vice President of Marketing
Harvey Kaufman ............ 65 Executive Vice President, Secretary and Treasurer
Steven D. Leeke ......... 35 Director
A. Jeffry Robinson ...... 54 Director
Michael B. Goldberg ...... 50 Director Nominee
</TABLE>
STEPHEN R. COHEN has served as Chairman of the Board and Chief Executive
Officer of the Company since December 1995. From 1975 until January 1995, Mr.
Cohen served as Chairman of the Board of TPI Enterprises, Inc., formerly Telecom
Plus International, Inc. ("TPI"). Under Mr. Cohen's stewardship, TPI grew from a
small, local telephone interconnect company with approximately $1,000,000 in
revenue in 1975 to become the largest independent supplier of telecommunications
equipment in the United States, with over $300 million in revenue in 1987. Mr.
Cohen also oversaw the expansion of TPI's operations into other segments of the
telecommunications industry, including cellular operations, radio common carrier
paging and telecommunications software development. In 1987, TPI sold its core
telecommunications business to Siemens AG ("Siemens"), who had been TPI's joint
venture partner since 1984. Following the sale to Siemens, Mr. Cohen oversaw the
redeployment of TPI's assets into new businesses including restaurants and movie
theaters. Mr. Cohen retired from TPI in January 1995.
ROBERT KENNEDY has served as a director of the Company since December 1995
and became its President and Chief Operating Officer in March 1996. Mr. Kennedy
has over 20 years experience in the telecommunications industry. From 1976 until
joining NetSpeak, Mr. Kennedy served in a number of executive positions at TPI,
including Vice President of Sales and Marketing from 1976 to 1985 and as
Executive Vice President since 1985. In the latter capacity, Mr. Kennedy was
responsible for sales, marketing, strategic planning, product development and
overall profit responsibility for a number of TPI's operating subsidiaries. Mr.
Kennedy also served as a member of TPI's Board of Directors from 1984 to 1993
and as its Executive Vice President to March 1996.
SHANE D. MATTAWAY co-founded ITC in May 1995 and became the Company's
Executive Vice President, Chief Technical Officer and a director upon the
Company's acquisition of ITC in December 1995. For approximately 10 years prior
to founding ITC, Mr. Mattaway was the founder and President of Boca Development,
a computer consulting and software development firm. Mr. Mattaway has also
served as an Adjunct Professor in Computer Science at the University of Miami,
Florida International University and Florida Atlantic University.
JOHN W. STATEN joined NetSpeak as its Chief Financial Officer and Assistant
Secretary in February 1996. From 1990 to January 1996, Mr. Staten was employed
by Deloitte & Touche LLP, a public accounting firm, most recently as Manager
focusing on the retail and technology sectors.
STEVEN F. MILLS joined NetSpeak as Vice President of Marketing in October
1996. From April 1995 to October 1996, Mr. Mills was employed by Boca Research,
Inc., a developer and manufacturer of
31
<PAGE>
modems, most recently as Vice President of Business Development. From January
1994 to April 1995, Mr. Mills was employed by General DataCom Services, as
Assistant Vice President of Transmission Products. Prior to General DataCom, Mr.
Mills was employed by Primary Access Corp. from 1991 to January 1994 serving in
various capacities.
HARVEY KAUFMAN has served as Executive Vice President, Secretary and
Treasurer of NetSpeak since December 1995. Mr. Kaufman has over 25 years of
expertise in the telecommunications industry. He joined TPI in 1979 as Vice
President of Strategic Planning with additional responsibilities for
Applications Engineering and Product Management. Upon the sale of TPI's core
telecommunications business to Siemens in 1987, Mr. Kaufman joined Siemens as
Executive Director of Marketing for Siemens Information Systems and subsequently
served as Vice President of Product Management and Applications Engineering and
Director for Advanced Systems and Applications. Mr. Kaufman retired from Siemens
in October 1995.
STEVEN D. LEEKE was appointed to the Company's Board of Directors in
November 1996 as the designee of Motorola. Mr. Leeke is currently the Director
and General Manager of Internet Content and Service Businesses within Motorola
New Enterprises. He joined Motorola in March 1995 as Director of Strategy for
New Enterprises. In 1988 he joined Texas Instruments: first as a member of their
Corporate Research Development & Engineering Department; then as Branch Manager,
Production Management Decision Systems; and finally as Manager of Strategic
Development, Semiconductor Group Research & Development, reporting to the Chief
Technical Officer. See "Certain Transactions."
A. JEFFRY ROBINSON has served as a director of NetSpeak since December
1995. Since April 1996, Mr. Robinson has been a partner in the Miami law firm of
Broad & Cassel, the Company's counsel, specializing in corporate and securities
matters. From March 1992 until April 1996, Mr. Robinson was a shareholder in the
Miami law firm of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.
MICHAEL B. GOLDBERG will become a director of the Company upon consummation
of this Offering. Since 1991, Mr. Goldberg has been Managing Director at Kelso &
Company, a private investment firm. From 1989 to 1991, Mr. Goldberg was a
Managing Director and Co-head of the Mergers and Acquisitions department at the
First Boston Corporation. Mr. Goldberg is also a director of Hosiery Corporation
of America, Inc. and Universal Outdoor Holdings, Inc. Prior thereto he was a
partner in Skadden, Arps, Slate, Meagher & Flom.
There are no family relationships among the Company's directors and
executive officers.
Directors of the Company hold their offices until the next annual meeting
of the Company's shareholders and until their successors have been duly elected
and qualified or their earlier resignation, removal from office or death. There
are no committees of the Board of Directors. Upon consummation of this Offering,
the Company intends to establish an audit and compensation committee, consisting
of a majority of independent directors.
Officers of the Company serve at the pleasure of the Board of Directors and
until the first meeting of the Board of Directors following the next annual
meeting of the Company's shareholders and until their successors have been
chosen and qualified.
DIRECTOR COMPENSATION
The Company currently does not pay cash compensation to non-employee
directors. Following consummation of this Offering, the Company intends to pay
non-employee directors a fee of $1,000 per meeting of the Board of Directors or
committee thereof attended and to provide non-employee directors with annual
grants of stock options under the 1995 Plan to purchase 5,000 shares of Common
Stock. Directors are reimbursed for travel and lodging expenses in connection
with their attendance at meetings. In January 1996, A. Jeffry Robinson and L.
Richard Mattaway, a former director, were each granted ten-year options under
the 1995 Plan to purchase 75,000 shares of Common Stock at a price of $2.50 per
share.
32
<PAGE>
INDEMNIFICATION AGREEMENTS
The Company has entered into an indemnification agreement with each of its
directors and executive officers. Each indemnification agreement provides that
the Company will indemnify such person against certain liabilities (including
settlements) and expenses actually and by him or her in connection with any
threatened or pending legal action, proceeding or investigation (other than
actions brought by or in the right of the Company) to which he or she is, or is
threatened to be, made a party by reason of his or her status as a director,
officer or agent of the Company, provided that such director or executive
officer acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal proceedings, had no reasonable cause to believe his or her conduct was
unlawful. With respect to any action brought by or in the right of the Company,
a director or executive officer will also be indemnified, to the extent not
prohibited by applicable law, against expenses and amounts paid in settlement,
and certain liabilities if so determined by a court of competent jurisdiction,
actually and reasonably incurred by him or her in connection with such action if
he or she acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning compensation for 1996
received by the Chief Executive Officer (the "CEO") and the only other
executive officer whose annual salary and bonus exceeded $100,000 during 1996
(collectively with the CEO, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- --------------
SECURITIES
OTHER ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#)(2)
- ------------------------------- ------- --------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Stephen R. Cohen 1996 43,080 - 1,662 300,000
Chairman of the Board and CEO
Shane D. Mattaway 1996 109,171 - 1,662 100,000
Executive Vice President and
Chief Technical Officer
</TABLE>
- ----------------
(1) Represents a car allowance of $600 per month.
(2) Represents options to purchase Common Stock granted to the Named Executive
Officer under the 1995 Plan.
EMPLOYMENT AGREEMENTS
Effective October 1996, the Company entered into employment agreements with
Stephen R. Cohen, the Company's Chairman and Chief Executive Officer, Robert
Kennedy, the Company's President and Chief Operating Officer, Shane D. Mattaway,
the Company's Executive Vice President and Chief Technical Officer, John W.
Staten, the Company's Chief Financial Officer and Harvey Kaufman, the Company's
Executive Vice President and Secretary. The employment agreements have "rolling"
two year terms, so that at all times the remaining term of the agreement is two
years. The employment agreements provide for annual salaries initially set at
$175,000, $150,000, $125,000, $90,000 and $75,000 for Messrs. Cohen, Kennedy,
Mattaway, Staten and Kaufman respectively.
Each employment agreement provides that the executive officer who is a
party thereto (the "Executive Officer") will continue to receive his salary for
a period of two years after termination of employment, if his employment is
terminated by the Company for any reason other than death, disability or Cause
(as defined in the employment agreement), or for a period of 12 months after
termination of the agreement as a result of the Executive Officer's disability,
and the Executive Officer's
33
<PAGE>
estate will receive a lump sum payment equal to one year's salary plus a pro
rata portion of any bonus to which the Executive Officer is entitled upon
termination of the employment agreement by reason of the Executive Officer's
death. Each employment agreement also prohibits the Executive Officer from
directly or indirectly competing with the Company for one year after termination
for any reason except a termination without Cause. If a Change of Control (as
defined in the employment agreement) occurs, the employment agreement provides
for the continued employment of the Executive Officer for a period of two years
following the Change of Control. In addition, following the Change of Control,
if the Executive Officer's employment is terminated by the Company other than
for Cause or by reason of the Executive Officer's death or disability, or by
the Executive Officer for certain specified reasons (such as a reduction of
compensation or a diminution of duties), the Executive Officer will receive a
lump sum cash payment equal to 200% of the cash compensation received by the
Executive Officer during the 12 calendar months prior to such termination.
The Company is also party to a two year employment agreement with Steven F.
Mills expiring in October 1998. The term of Mr. Mills' employment agreement will
automatically be extended for successive one-year terms unless the Company or
Mr. Mills gives written notice of its or his, respectively, intent not to extend
such agreement to the other party at least 60 days prior to the then scheduled
expiration date. Mr. Mills' annual salary is initially set at $120,000. Mr.
Mills employment agreement contains confidentiality and non-competition
provisions.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of
stock options made during 1996 to any of the Named Executive Officers.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
----------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE OF ASSUMED
NUMBER % OF TOTAL ANNUAL RATES OF
OF SHARES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED EXERCISE OR FOR OPTION TERMS($)(1)
-----------------------------
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION 5% 10%
----------- ------------
GRANTED(#)(1) IN FISCAL YEAR ($/SH) DATE
---------------- ----------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Cohen ...... 300,000 18.5 $2.50 1/24/06 $472,000 $1,195,000
Shane D. Mattaway ...... 100,000 6.2 2.50 1/24/06 157,000 398,000
</TABLE>
- ----------------
(1) Based upon the exercise price, which was equal to the fair market on the
date of grant, and annual appreciation at the rate stated on such price
through the expiration date of the options. Amounts represented hypothetical
gains that could be achieved for the options if exercised at the end of the
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission (the
"Commission") and do not represent the Company's estimate or
projection of the future stock price. Actual gains, if any, are contingent
upon the continued employment of the Named Executive Officer through the
expiration date, as well as being dependent upon the general performance of
the Common Stock. The potential realizable values have not taken into account
amounts required to be paid for federal income taxes.
STOCK OPTIONS HELD AT END OF 1996
The following table indicates the total number and value of exercisable and
unexercisable stock options held by each of the Named Executive Officers as of
December 31, 1996. No options were exercised by any of the Named Executive
Officers during 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
----------------------------------- --------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
-------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Stephen R. Cohen ...... 300,000 0 $1,950,000 0
Shane D. Mattaway ...... 250,000 0 1,850,000 0
</TABLE>
- ----------------
(1) Based upon the assumed initial public offering price of $9.00 per share,
less the applicable exercise price.
34
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee and all decisions
regarding executive compensation have been made by the Board of Directors as a
whole. See "Certain Transactions" with respect to the payment of legal fees to a
law firm of which A. Jeffry Robinson is a partner.
1995 STOCK OPTION PLAN
Under the 1995 Plan, as amended, an aggregate of 2,700,000 shares of Common
Stock are reserved for issuance upon exercise of options ("1995 Plan Options").
1995 Plan Options are designed to serve as incentives for retaining qualified
and competent directors, employees, consultants and independent contractors of
the Company.
The Company's Board of Directors, or a committee thereof, administers and
interprets the 1995 Plan and is authorized to grant 1995 Plan Options thereunder
to all eligible employees of the Company, including directors and executive
officers (whether or not employees) of the Company, as well as consultants and
independent contractors hired by the Company. The 1995 Plan provides for the
granting of both "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended) and nonstatutory stock options.
Incentive stock options may only be granted, however, to employees. 1995 Plan
Options can be granted on such terms and at such prices as determined by the
Board, or a committee thereof, except that the per share exercise price of
incentive 1995 Plan Options will not be less than the fair market value of the
Common Stock on the date of grant and, in the case of an incentive 1995 Plan
Option granted to a 10% shareholder, the per share exercise price will not be
less than 110% of such fair market value as defined in the 1995 Plan.
In accordance with the Internal Revenue Service Code, options granted under
the 1995 Plan that would otherwise qualify as incentive stock options will not
be treated as incentive stock options to the extent that the aggregate fair
market value of the shares covered by the incentive stock options which are
exercisable for the first time by any individual during any calendar year
exceeds $100,000.
1995 Plan Options will be exercisable after the period or periods specified
in the option agreement, provided, however, that incentive 1995 Plan Options
vest in three annual installments commencing one year from the date of grant.
1995 Plan Options granted are not exercisable after the expiration of ten years
from the date of grant and are not transferable other than by will or by the
laws of descent and distribution. Adjustments in the number of shares subject to
1995 Plan Options can be made by the Board of Directors or the appropriate
committee in the event of a stock dividend or recapitalization resulting in a
stock split-up, combination or exchange of shares. Under the 1995 Plan, options
may become immediately exercisable in the event of a change in control or
approval by stockholders of the Company of a merger, reorganization,
liquidation, dissolution or disposition of all or substantially all of the
assets of the Company. The 1995 Plan also authorizes the Company to make loans
to optionees to enable them to exercise their options.
Non-statutory options to purchase an aggregate of 53,000 shares of Common
Stock previously granted under the 1995 Plan to various employees have been
exercised. As of the date of this Prospectus, the Company has 1995 Plan Options
outstanding to purchase an aggregate of 2,263,500 shares of Common Stock at
exercise prices ranging from $1.00 to $7.00. Of such options, 893,500 are
incentive stock options and 1,370,000 are non-statutory stock options.
35
<PAGE>
CERTAIN TRANSACTIONS
Upon incorporation of the Company in December 1995, the Company sold an
aggregate of 2,950,000 shares of Common Stock to various executive officers,
directors and advisors for an aggregate of $590,000, including 1,750,000 shares
to Stephen R. Cohen, 500,000 shares to Robert Kennedy, 250,000 shares to Harvey
Kaufman and 100,000 shares to each of L. Richard Mattaway and A. Jeffry
Robinson.
In December 1995, the Company acquired all of the issued and outstanding
capital stock of ITC by merger of ITC with a wholly-owned subsidiary of the
Company. As consideration for such, the Company issued an aggregate of 2,500,000
shares of Common Stock to the shareholders of ITC in exchange for all of their
ITC shares, including 1,000,000 shares to an affiliate of L. Richard Mattaway
and 850,000 shares to Shane D. Mattaway.
In connection with the establishment of a strategic alliance, in August
1996, Motorola made a minority investment in the Company pursuant to which it
purchased 769,853 shares of Common Stock and the Motorola Warrant to purchase up
to an additional 452,855 shares of Common Stock at a price of $5.50 per share
for a six year period expiring in August 2002 for an aggregate of $4,234,192. In
the event the Company consummates the Offering or any other underwritten public
offering of its Common Stock at a price of at least $7.00 per share resulting in
the receipt by the Company of net proceeds of not less than $10,000,000, the
Company, at its option, upon not less than 20 business days' notice given prior
to the planned closing date of such public offering, may require Motorola to
exercise the Motorola warrant, provided, however, that within 15 business days
of receipt of the Company's notice, Motorola may elect to cancel the Motorola
Warrant unexercised. In addition, Motorola was granted the right to designate
one member of the Company's Board of Directors so long as Motorola and its
affiliates beneficially own 5% or more of the Company's outstanding Common
Stock. Motorola has advised the Company that it will exercise the Motorola
Warrant in full upon consummation of this Offering, provided that the Offering
meets the criteria set forth above. There are no agreements between management
and Motorola with respect to voting their respective shares of Common Stock.
A. Jeffry Robinson is a partner of the Miami, Florida law firm of Broad and
Cassel, which serves as counsel to the Company. The Company has paid legal fees
to Broad and Cassel for services rendered.
The Company has adopted a policy that any transactions between the Company
and its executive officers, directors, principal shareholders or their
affiliates take place on an arms-length basis and require the approval of a
majority of the independent directors of the Company.
36
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
after this Offering by (i) each of the shareholders of the Company owning more
than 5% of the outstanding shares of Common Stock; (ii) each director of the
Company and director nominee; (iii) each of the Named Executive Officers; and
(iv) all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF CLASS(3)
------------------------
NAME AND ADDRESS OF NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER OF GROUP(1) BENEFICIALLY OWNED(2) OFFERING OFFERING
- ------------------------------------- ----------------------- ----------- ----------
<S> <C> <C> <C>
Stephen R. Cohen(4) ............... 2,000,000 23.7% 19.1%
Robert Kennedy(5) .................. 760,000 9.0 7.3
Shane D. Mattaway(6) ............... 1,078,000 12.8 10.4
Steven D. Leeke(7) .................. -0- -0- -0-
A. Jeffry Robinson(8) ............... 175,000 2.1 1.7
Michael B. Goldberg ............... -0- -0- -0-
All directors and executive officers
as a group (nine persons)(9) ...... 4,319,667 47.5 38.9
5% OR GREATER HOLDERS
Motorola, Inc. ..................... 1,222,708 15.0 12.0
1303 E. Algonquin Road
Schaumburg, Illinois 60196(3)
L. Richard Mattaway(10) ............ 675,000 8.2 6.6
1508 San Ignacio Ave.
Suite 200
Coral Gables, Florida 33416
Garmarin Investments, Ltd. ......... 500,000 6.1 4.9
c/o CIBC Bank and Trust Company
(Cayman) Limited
P.O. Box 694GT
Edward Street
Grand Cayman, Cayman Islands(11)
Glenn Hutton ........................ 500,000 6.1 4.9
9725 Hammock Boulevard
Suite 206
Miami, Florida 33196
</TABLE>
- ----------------
(1) Except as indicated, the address of each person named in the table is c/o
NetSpeak, 902 Clint Moore Road, Suite 104, Boca Raton, Florida 33487.
(2) Except as otherwise indicated, the persons named in this table have sole
voting and investment power with respect to all shares of Common Stock
listed, which include shares of Common Stock that such persons have the
right to acquire a beneficial interest within 60 days from the date of this
Prospectus.
(3) Gives effect to exercise of the Motorola Warrant.
(4) Includes 300,000 shares of Common Stock issuable upon the exercise of stock
options.
(5) Includes 250,000 shares of Common Stock issuable upon the exercise of stock
options and 10,000 shares of Common Stock issuable upon the exercise of
stock options held by Mr. Kennedy's spouse.
(6) Includes 250,000 shares of Common Stock issuable upon the exercise of stock
options.
(7) Does not include the shares of Common Stock beneficially owned by Motorola,
in which shares Mr. Leeke disclaims beneficial ownership.
(8) Includes 75,000 shares of Common Stock issuable upon the exercise of stock
options.
(9) Includes (i) the shares of Common Stock described in notes (3) through (8),
(ii) 40,000 shares of Common Stock issuable upon the exercise of stock
options held by John W. Staten, and (iii) 250,000 shares of Common Stock
held by Harvey Kaufman and 16,667 shares of Common Stock issuable upon the
exercise of stock options held by Mr. Kaufman.
(10) Includes 400,000 shares of Common Stock held in a family limited
partnership, 100,000 shares of Common Stock held by an affiliated
corporation and 75,000 shares of Common Stock issuable upon the exercise of
stock options.
(11) Luis Gallego is the beneficial owner of these shares.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of (i) 25,000,000
shares of Common Stock, par value $.01 per share, 10,151,387 shares of which
will be outstanding upon consummation of this Offering and (ii) 1,000,000 shares
of Preferred Stock, par value $.01 per share (the "Preferred Stock"), none
of which will be outstanding upon consummation of this Offering. As of the date
of this Prospectus, there were approximately 100 holders of record of the Common
Stock.
COMMON STOCK
Subject to the rights of the holders of any Preferred Stock that may be
outstanding, each holder of Common Stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor, and, in the event of liquidation, to
share pro rata in any distribution of the Company's assets after payment or
providing for the payment of liabilities and the liquidation preference of any
outstanding Preferred Stock. Each holder of Common Stock is entitled to one vote
for each share held of record on the applicable record date on all matters
presented to a vote of shareholders, including the election of directors.
Holders of Common Stock have no cumulative voting rights or preemptive rights to
purchase or subscribe for any stock or other securities, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
stock. All outstanding shares of Common Stock are, and the shares of Common
Stock issuable upon exercise of the Investor Warrants, the Agent's Option and
the Agent's Warrants will be, when issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors has the authority to issue 1,000,000
shares of Preferred Stock in one or more series and to fix, by resolution,
conditional, full, limited or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, if
any, and the qualifications, limitations or restrictions thereof, if any,
including the number of shares in such series (which the Board may increase or
decrease as permitted by Florida law), liquidation preferences, dividend rates,
conversion or exchange rights, redemption provisions of the shares constituting
any series and such other special rights and protective provisions with respect
to any class or series as the Board may deem advisable without any further vote
or action by the shareholders. Any shares of Preferred Stock so issued would
have priority over the Common Stock with respect to dividend or liquidation
rights or both and could have voting and other rights of shareholders. The
Company has no present plans to issue shares of Preferred Stock.
CERTAIN FLORIDA LEGISLATION
Florida has enacted legislation that may deter or frustrate takeovers of
Florida corporations. The Florida Control Share Act generally provides that
shares acquired in a "control share acquisition" will not possess any
voting rights unless such voting rights are approved by a majority of the
corporation's disinterested shareholders. A "control share acquisition"
is an acquisition, directly or indirectly, by any person of ownership of, or the
power to direct the exercise of voting power with respect to, issued and
outstanding "control shares" of a publicly held Florida corporation.
"Control shares" are shares, which, except for the Florida Control Share
Act, would have voting power that, when added to all other shares owned by a
person or in respect to which such person may exercise or direct the exercise of
voting power, would entitle such person, immediately after acquisition of such
shares, directly or indirectly, alone or as a part of a group, to exercise or
direct the exercise of voting power in the election of directors within any of
the following ranges: (i) at least 20% but less than 33 1/3% of all voting
power; (ii) at least 33 1/3% but less than a majority of all voting power; or
(iii) a majority or more of all voting power. The Florida Affiliated
Transactions Act generally requires supermajority approval by disinterested
shareholders of certain specified transactions between a public corporation and
holders of more than 10% of the outstanding voting shares of the corporation (or
their affiliates). Florida law and the Company's Articles and Bylaws also
authorize the Company to indemnify the Company's directors,
38
<PAGE>
officers, employees and agents. In addition, the Company's Articles and Florida
law presently limit the personal liability of corporate directors for monetary
damages, except where the directors (i) breach their fiduciary duties, and (ii)
such breach constitutes or includes certain violations of criminal law, a
transaction from which the directors derived an improper personal benefit,
certain unlawful distributions or certain other reckless, wanton or willful acts
or misconduct.
TRANSFER AGENT
The transfer agent for the Common Stock is American Stock Transfer & Trust
Company, New York, New York.
REPORTS TO SHAREHOLDERS
The Company intends to furnish registered holders with annual reports
containing financial statements audited by its independent accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 10,151,387 shares
of Common Stock outstanding. Of these shares, the 2,000,000 shares of Common
Stock sold in this offering will be freely tradeable without restriction under
the Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company as that term is defined in Rule 144 under the
Securities Act (an "Affiliate"), which shares generally may be sold
publicly without registration under the Securities Act only in compliance with
Rule 144.
In general, under Rule 144 as currently in effect, if a period of at least
one year has elapsed since the later of the date the "restricted shares" (as
that phrase is defined in Rule 144) were acquired from the Company and the date
they were acquired from an Affiliate, then the holder of such restricted shares
(including an Affiliate) is entitled to sell a number of shares within any
three-month period that does not exceed the greater of 1% of the then
outstanding shares of the Common Stock or the average weekly reported volume of
trading of the Common Stock on the ____________________ during the four calendar
weeks preceding such sale. The holder may only sell such shares through
unsolicited brokers' transactions or directly to market makers. Sales under Rule
144 are also subject to certain requirements pertaining to the manner of such
sales, notices of such sales and the availability of current public information
concerning the Company. Affiliates may sell shares not constituting restricted
shares in accordance with the foregoing volume limitations and other
requirements but without regard to the one-year holding period.
Under Rule 144(k), if a period of at least two years has elapsed between
the later of the date restricted shares were acquired from the Company and the
date they were acquired from an Affiliate, as applicable, a holder of such
restricted shares who is not an Affiliate at the time of the sale and has not
been an Affiliate for at least three months prior to the sale would be entitled
to sell the shares immediately without regard to the volume limitations and
other conditions described above.
The Company's executive officers and directors, and certain shareholders
who collectively own an aggregate of 6,806,658 shares of Common Stock have
agreed that they will not directly or indirectly, sell, offer, contract to sell,
make a short sale, pledge or otherwise dispose of any shares of Common Stock (or
any securities convertible into or exchangeable or exercisable for any other
rights to purchase or acquire Common Stock other than shares of Common Stock
issuable upon exercise of outstanding options) owned by them, for a period of
nine months after the date of this Prospectus, without the prior written consent
of Josephthal. After the nine month period, 6,353,653 of the shares subject to
the sale restriction will be eligible for sale in the public market pursuant to
Rule 144 under the Securities Act, subject to the volume limitations and other
restrictions contained in Rule 144. The remaining 452,855 shares of Common Stock
subject to the restrictions on sale will become eligible for public sale under
Rule 144 in April 1998. Of the shares of Common Stock not subject to the nine
month restriction on sale described above, 1,332,729 shares will be eligible for
sale subject to the volume limitations of Rule 144 commencing 90 days after the
date of this Prospectus, and the balance of 12,000 shares will become available
for public sale under Rule 144 in January 1998.
The Company has granted to Motorola and Creative certain demand and
piggy-back registration rights under the Securities Act, with respect to the
shares of Common Stock beneficially owned by them.
Prior to this Offering, there has been no market for the Common Stock of
the Company. The Company can make no predictions as to the effect, if any, that
sales of shares of Common Stock or the availability of shares of Common Stock
for sale will have on the market price prevailing from time to time.
Nevertheless, sales of significant amounts of shares of Common Stock in the
public market, or the perception that such sales may occur, could adversely
affect prevailing market prices.
40
<PAGE>
UNDERWRITING
The Underwriters named below, (the"Underwriters"), for whom
Josephthal Lyon & Ross Incorporated and Cruttenden Roth Incorporated are acting
as the Representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement"), to purchase from the Company, and the Company
has agreed to sell to the Underwriters on a firm commitment basis, the
respective number of shares of Common Stock set forth below opposite its name:
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------- -----------
Josephthal Lyon & Ross Incorporated ......
Cruttenden Roth Incorporated ...............
----
Total ................................. 2,000,000
===========
The Underwriters are committed to purchase all the shares of Common Stock
offered hereby, if any of such shares are purchased. The Underwriting Agreement
provides that the obligations of the several Underwriters are subject to the
conditions precedent specified therein.
The Company has been advised by the Representatives that the Underwriters
initially propose to offer the Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less concessions of not in excess of $ per share of
Common Stock. Such dealers may re-allow a concession not in excess of $ per
share of Common Stock to other dealers. After the commencement of the Offering,
the public offering price, concession and reallowance may be changed.
The Representatives have advised the Company that they do not anticipate
sales to discretionary accounts by the Underwriters to exceed five percent of
the securities offered by the Company hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay the Representatives an expense allowance on a non-accountable
basis equal to one and one-half percent of the gross proceeds of this Offering,
of which $35,000 has been paid to date.
The Underwriters have been granted an option by the Company, exercisable
within 30 days of the date of this Prospectus, to purchase up to an additional
300,000 shares of Common Stock at the initial public offering price per share of
Common Stock offered hereby, less underwriting discounts and the non-accountable
expense allowance. Such option may be exercised solely for the purpose of
covering over-allotments, if any, incurred in the sale of the shares offered
hereby. To the extent such option is exercised, in whole or in part, each
Underwriter will have a firm commitment, subject to certain conditions, to
purchase the number of the additional shares of Common Stock proportionate to
its initial commitment.
Holders of 6,806,658 shares of the Company's Common Stock, including each
officer, director and principal stockholder of the Company, have executed
agreements pursuant to which they have agreed
41
<PAGE>
not to sell or otherwise dispose of their shares for a period of nine months
from the date of this Prospectus without the prior written consent of
Josephthal. An appropriate legend shall be marked on the face of the
certificates representing all of such securities.
Upon consummation of this Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, the Advisors' Warrants to purchase
from the Company 200,000 shares of Common Stock. The Advisors' Warrants are
initially exercisable at a price per share equal to 120% of the initial public
offering price for a period of four years commencing one year after the date of
this Prospectus and are restricted from sale, transfer, assignment or
hypothecation for a period of twelve months from the date hereof, except to
officers of Josephthal. The Advisors' Warrants also provide for adjustment in
the number of shares of Common Stock issuable upon the exercise thereof as a
result of certain subdivisions and combinations of the Common Stock. The
Advisors' Warrants grant to the holders thereof certain rights of registration
for the securities issuable upon exercise of the Advisors' Warrants.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering for the Common Stock has been
determined by negotiations between the Company and the Representatives and is
not necessarily related to the Company's asset value, net worth or other
established criteria of value. The factors considered in such negotiations, in
addition to prevailing market conditions, included the history of and prospects
for the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and certain
other factors as were deemed relevant.
In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 300,000 shares of Common Stock, by
exercising the Over-Allotment Option. In addition, the Representative may impose
"penalty bids" under contractual arrangements with the Underwriters,
whereby it may reclaim from an Underwriter (or dealer participating in the
Offering) for the account of other Underwriters, the selling concession with
respect to Common Stock that is distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Common Stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each such agreement which are filed as exhibits to the Registration
Statement. See "Additional Information."
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Broad and Cassel, a partnership including professional
associations, Miami, Florida. A. Jeffry Robinson, a partner of Broad and Cassel
is a director of the Company and owns 100,000 shares of Common Stock and options
to purchase 75,000 shares of Common Stock. Orrick, Herrington & Sutcliffe LLP,
New York, New York, has acted as counsel to the Underwriters in connection with
this Offering.
42
<PAGE>
EXPERTS
The consolidated financial statements included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of
which this Prospectus is a part and which term shall encompass any amendments
thereto) on Form S-1 pursuant to the Securities Act with respect to the Common
Stock being offered in this offering. This Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission. Statements made in this Prospectus as
to the contents of any contract, agreement or other document referred to are not
necessarily complete; with respect to any such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by reference to the
Registration Statement and to the financial statements, schedules and exhibits
filed as a part thereof.
This Registration Statement and all other information filed by the Company
with the Commission may be inspected without charge at the principal reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of all or any part thereof
may be obtained upon payment of fees prescribed by the Commission from the
Public Reference Section of the Commission at its principal office in
Washington, D.C. set forth above. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
43
<PAGE>
NETSPEAK CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report ...................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 ..................... F-3
Consolidated Statements of Operations for the Predecessor for the period
May 15, 1995 (date of inception) to December 18, 1995 and for the
Successor for the period December 8, 1995 (date of inception) to
December 31, 1995 and the year ended December 31, 1996 ........................... F-4
Consolidated Statements of Shareholders' Equity for the Predecessor for the period
May 15, 1995 (date of inception) to December 18, 1995 and for the
Successor for the period December 8, 1995 (date of inception) to
December 31, 1995 and the year ended December 31, 1996 ........................... F-5
Consolidated Statements of Cash Flows for the Predecessor for the period
May 15, 1995 (date of inception) to December 18, 1995 and for the
Successor for the period December 8, 1995 (date of inception) to
December 31, 1995 and the year ended December 31, 1996 ........................... F-6
Notes to Consolidated Financial Statements ....................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of NetSpeak Corporation:
We have audited the accompanying consolidated balance sheets of NetSpeak
Corporation and subsidiary (the "Company") as of December 31, 1995 and 1996, and
the related consolidated statements of operations, shareholders' equity and cash
flows of Internet Telephone Company (the "Predecessor") for the period from May
15, 1995 (date of inception) to December 18, 1995, and of the Company for the
period December 8, 1995 (date of inception) to December 31, 1995 and for the
year ended December 31, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1995 and 1996, and the results of operations and cash flows of the Predecessor
for the period from May 15, 1995 (date of inception) to December 18, 1995, and
of the Company for the period December 8, 1995 (date of inception) to December
31, 1995 and the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
January 24, 1997 (March 26, 1997 as
to the sixth paragraph of Note 3)
F-2
<PAGE>
NETSPEAK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
------------ ---------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................... $ 483,084 $ 6,294,697
Accounts receivable .......................................... - 340,000
Prepaid and other current assets .............................. 15,833 85,840
Deferred tax asset ............................................. - 182,000
--------- -----------
Total current assets ....................................... 498,917 6,902,537
Property and equipment, net .................................... 31,290 1,049,952
Other assets ................................................... 25,359 325,126
--------- -----------
$ 555,566 $ 8,277,615
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable ............................................. $ 80,045 $ 92,192
Accrued expenses ............................................. 28,004 264,509
Unearned revenue ............................................. - 2,242,011
--------- -----------
Total current liabilities ................................. 108,049 2,598,712
--------- -----------
Commitments and contingencies (Note 6) ........................ - -
Shareholders' equity:
Preferred stock: 1,000,000 shares of $.01 par value authorized;
no shares issued or outstanding ..............................
Common stock: 25,000,000 shares of $.01 par value authorized;
5,450,000 and 7,698,532 shares issued and outstanding at
December 31, 1995 and 1996, respectively ..................... 54,500 76,985
Additional paid-in capital .................................... 1,035,500 9,110,105
Accumulated deficit .......................................... (642,483) (3,508,187)
--------- -----------
Total shareholders' equity ................................. 447,517 5,678,903
--------- -----------
$ 555,566 $ 8,277,615
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NETSPEAK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------ -------------------------------------
MAY 15, 1995 DECEMBER 8, 1995 YEAR ENDED
TO DECEMBER 18, TO DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------------ ------------------- --------------
<S> <C> <C> <C>
Net revenues .................................... $ - $ - $ 867,117
Operating expenses:
Cost of revenues ................................. - - 47,129
Research and development ........................ 175,038 28,301 2,255,644
Sales and marketing .............................. - - 722,353
General and administrative ........................ 5,644 57,200 836,791
Purchased research and development ............... - 556,982 -
--------- --------- -----------
Total operating expenses ..................... 180,682 642,483 3,861,917
Loss from operations .............................. (180,682) (642,483) (2,994,800)
Interest and other income ........................ - - 172,096
--------- --------- -----------
Loss before income taxes ........................ (180,682) (642,483) (2,822,704)
Income taxes .................................... - - 43,000
--------- --------- -----------
Net loss .......................................... $(180,682) $(642,483) $(2,865,704)
========= ========= ===========
Net loss per share .............................. $ (0.35)
===========
Shares used in computing net loss per share ...... 8,217,151
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NETSPEAK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
--------------------------
SHARES AMOUNT CAPITAL DEFICIT TOTAL
----------- ---------- ------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Predecessor
Balance at May 15, 1995 ............ - $ - $ - $ - $ -
Sale of common stock ............... 1,000 1,000 - - 1,000
Capital paid in .................. - - 128,200 - 128,200
Net loss ........................... - - - (180,682) (180,682)
---------- ------- ---------- ----------- -----------
Balance at December 18, 1995 ...... 1,000 $1,000 $ 128,200 $ (180,682) $ (51,482)
========== ======= ========== =========== ===========
Successor
Balance at December 8, 1995 ...... - $ - $ - $ - $ -
Sale of common stock ............... 2,950,000 29,500 560,500 - 590,000
Issuance of common stock in
acquisition ........................ 2,500,000 25,000 475,000 - 500,000
Net loss ........................... - - - (642,483) (642,483)
---------- ------- ---------- ----------- -----------
Balance at December 31, 1995 ...... 5,450,000 54,500 1,035,500 (642,483) 447,517
Issuance of common stock
and warrants ..................... 2,195,532 21,955 7,942,635 - 7,964,590
Exercises of stock options ......... 53,000 530 131,970 - 132,500
Net loss ........................... - - - (2,865,704) (2,865,704)
---------- ------- ---------- ----------- -----------
Balance at December 31, 1996 ...... 7,698,532 $76,985 $9,110,105 $(3,508,187) $(5,678,903)
========== ======= ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NETSPEAK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------ ------------------------------------
MAY 15, 1995 TO DECEMBER 8, 1995 YEAR ENDED
DECEMBER 18, TO DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------------ ------------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (180,682) $ (642,483) $(2,865,704)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ....................................... 1,500 - 198,172
Purchased research and development .................. - 556,982
Common stock issued for services ..................... - - 35,000
Deferred taxes ....................................... - - (182,000)
Changes in assets and liabilities:
Accounts receivable .............................. - - (340,000)
Prepaid and other current assets .................. - (15,833) (70,007)
Other assets ....................................... - (25,359) (299,767)
Accounts payable ................................. 43,927 36,118 12,147
Accrued expenses ................................. - 28,004 236,505
Unearned revenue ................................. - - 2,242,011
---------- ---------- ------------
Net cash used in operating activities ............... (135,255) (62,571) (1,033,643)
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (26,027) (6,763) (1,216,834)
Acquisition costs paid and cash overdraft assumed ...... - (37,582) -
---------- ---------- ------------
Net cash used in investing activities ............... (26,027) (44,345) (1,216,834)
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
and warrants .......................................... 129,200 590,000 8,062,090
Cash overdraft .......................................... 32,082 - -
---------- ---------- ------------
Net cash provided by financing activities ......... 161,282 590,000 8,062,090
---------- ---------- ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS ....................................... - 483,084 5,811,613
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .................................... - - 483,084
---------- ---------- ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD .......................................... $ - $ 483,084 $ 6,294,697
========== ========== ============
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes .............................. - - $ 225,000
---------- ---------- ------------
NONCASH INVESTING AND FINANCING
ACTIVITIES-SEE NOTES 2 AND 3
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS-NETSPEAK CORPORATION AND ITS SUBSIDIARY (THE
"Company") develops, markets, licenses, and supports a suite of intelligent
software modules, which enable real-time, concurrent interactive voice, video
and data transmission over packetized data networks such as the Internet and
local-area and wide-area networks ("LANs" and "WANs", respectively).
The markets for the Company's products and systems have only recently begun
to develop and are rapidly evolving. In addition, the Company's products and
systems are new and based on emerging technologies. As is typical in the case of
new and rapidly evolving industries, demand and market acceptance for recently
introduced technology products are subject to a high level of uncertainty. Broad
acceptance of the Company's products by customers and end users is critical to
the Company's success and ability to generate revenues. The Company has a
limited operating history upon which an evaluation of the Company and its
prospects can be based. The Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in the
early stage of development, particularly companies in new and rapidly evolving
markets. As of December 31, 1996, the Company had an accumulated deficit of
$3,508,187. Additionally, the Company's operating results may fluctuate
significantly in the future as a result of a variety of factors, many of which
are outside the Company's control. These factors include the volume of revenues
generated to the Company's strategic partners from sales of products and systems
incorporating the Company's technology or products, the mix of distribution
channels used by the Company, the timing of new product announcements and
release by the Company and its competitors, and general economic conditions.
However, the Company believes that adequate capital resources are available to
fund the Company's operations for a period of at least twelve months.
The Company was incorporated on December 8, 1995 under the name "Comnet
Corporation" and assumed its present name on December 18, 1995. For accounting
purposes, the Company emerged from the development stage during 1996.
Effective December 18, 1995, NetSpeak acquired the Internet Telephone
Company ("ITC"). ITC was incorporated for the purpose of developing telephony
communication software for use on the Internet and LANs and WANs. The
accompanying financial statements identified as for the Predecessor are for ITC
for the period from May 15, 1995 (inception) to the date of acquisition. The
accompanying financial statements identified as for the Successor are for
NetSpeak Corporation, including ITC on a consolidated basis from the date of its
acquisition, as of December 31, 1995 and 1996 and for the period from December
8, 1995 (inception) to December 31, 1995 and for the year ended December 31,
1996. See Note 2.
CONSOLIDATION-The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, ITC. Significant intercompany
transactions and balances have been eliminated in consolidation.
ACCOUNTING ESTIMATES-The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NET LOSS PER SHARE-Net loss per share was calculated by dividing net loss
by the weighted average number of common shares outstanding during 1996 adjusted
for the effect of common stock
F-7
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
equivalents, consisting of stock options and warrants, using the treasury stock
method with an estimated initial public offering price of $9.00 per share.
Pursuant to the requirements of the Securities and Exchange Commission, common
stock issued by the Company during the twelve months immediately preceding the
planned initial public offering, plus the number of common equivalent shares
pursuant to the grant of common stock options or warrants during the same
period, have been included in the calculation of the shares used in computing
net loss per share as if they were outstanding for all of 1996. The Company
issued 1,710,000 stock options prior to February 1, 1996, which were not
included in weighted average shares outstanding because such options were issued
prior to the twelve months immediately preceding the proposed offering and the
effect on net loss per share would be anti-dilutive.
REVENUE RECOGNITION-The Company generates revenues from products, licenses
and fees for services. License revenue includes a combination of fees for
initial and annual license fees. Service revenues are derived from fees for
customer maintenance and support and engineering.
Product and license revenues are generally recognized upon product shipment
or delivery of permanent authorization codes. License fees which cover a
specified time period are amortized ratably over the term of the license
agreement.
Service revenues for customer maintenance and support are recognized
ratably over the term of the maintenance period which is typically twelve
months. Service revenues for engineering services are generally recognized when
the services are performed, except when customer acceptance is required, then
revenues are recognized when customer acceptance has been received.
Costs related to insignificant obligations, primarily telephone support,
are accrued upon product shipment.
Advance payments of products, licenses and services are reported as
unearned revenue until all conditions for revenue recognition are met.
RESEARCH AND DEVELOPMENT-Research and development expenditures are charged
to operations as incurred. Statement of Financial Accounting Standard ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," requires capitalization of certain software development
costs once technological feasibility has been established.
Based on the Company's product development process, technological
feasibility is established upon completion of a working model. Costs incurred by
the Company between completion of the working model and the point at which the
product is ready for general release have been insignificant. All research and
development costs have been expensed as incurred.
CASH AND CASH EQUIVALENTS-Cash and cash equivalents include cash and
short-term investments purchased with a maturity of three months or less.
PROPERTY AND EQUIPMENT-Property and equipment is recorded at cost.
Depreciation is provided on the straight-line basis over the estimated useful
lives of the assets. Estimated useful lives range from 3 to 5 years.
FAIR VALUE OF FINANCIAL INSTRUMENTS-SFAS No. 107, "Disclosure about Fair
Value of Financial Instruments," require disclosure of the fair value of
financial instruments, both assets and
F-8
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES-(CONTINUED)
liabilities, recognized and not recognized in the Consolidated Balance Sheets of
the Company, for which it is practicable to estimate fair value. The estimated
fair values of financial instruments which are presented herein have been
determined by the Company using available market information. There were no
significant differences as of December 31, 1995 and 1996 in the carrying value
and fair value.
INCOME TAXES-Income taxes are provided based on the treatment prescribed by
SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 requires
accounting for income taxes based on the liability method and, accordingly,
deferred income taxes are provided to reflect temporary differences between
financial and tax reporting bases of assets and liabilities.
2. ACQUISITION OF ITC
EFFECTIVE DECEMBER 18, 1995, THE COMPANY ACQUIRED ITC BY ISSUING 2,500,000
SHARES OF THE Company's common stock, valued at $500,000, in exchange for all
of the outstanding shares of ITC. The acquisition was accounted for as a
purchase. The purchase price was allocated to the assets acquired, including
purchased research and development in process, and liabilities assumed based
upon their fair value on the date of acquisition. ITC's only activities from
inception to the date of acquisition consisted of research and development of
telephony communication software, and as such operating activities did not
commence. As of the date of the acquisition, technological feasibility of the
telephony communication software in process of development had not been
established and there was no alternative use; accordingly, the portion of the
purchase price allocated to purchased research and development was immediately
expensed in accordance with general accepted accounting principles. Pro forma
information giving effect to the acquisition is not presented because such
information would not be significantly different from that in the historical
statements of operations. The following summarizes the acquisition:
Equipment acquired .................................... $ 24,527
Purchased research and development ..................... 556,982
Accounts payable assumed .............................. (43,927)
Acquisition costs paid and cash overdraft assumed ...... (37,582)
--------
Common stock issued .................................... $ 500,000
========
3. SHAREHOLDERS' EQUITY
THE INITIAL CAPITALIZATION OF THE COMPANY CONSISTED OF THE ISSUANCE OF
2,500,000 SHARES OF COMMON stock for $500,000.
ITC's capitalization since inception consisted of the issuance of 1,000
shares of common stock for $1,000 cash and additional capital contributions of
$128,200.
During the period from December 8, 1995 to December 14, 1995, the Company
issued 450,000 shares of common stock for $90,000.
In the first quarter of 1996 the Company sold 1,204,000 shares of common
stock for $2.50 per share in a private placement raising $2,992,028, net of
offering costs. In January 1996, the Company issued an option to purchase
250,000 shares of common stock for $2.50 per share to a consulting firm, which
assisted the Company with its private placement. The fair value of this option,
$271,339, was recorded as a cost of the offering. The option is exercisable
through January 2003.
F-9
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
3. SHAREHOLDERS' EQUITY-(CONTINUED)
In June 1996, the Company issued 207,679 shares of common stock to Creative
Technology Ltd. ("Creative") at a price of $5.05 per share raising an aggregate
of $943,698, net of offering costs. The Company also issued Creative an
eighteen-month warrant to purchase up to an additional 207,679 shares of common
stock at a price of $5.05 per share, which warrant is only exercisable if
Creative distributes, during a specified period, a predetermined quantity of the
Company's Internet telephone client software product licensed to Creative. The
Company will record as an expense the fair value, $66,217, of the warrant if the
product distribution requirement becomes likely to be met. At December 31, 1996
no amounts have been recorded. The Company derived 44% of its revenues for the
year ended December 31, 1996 and at December 31, 1996, had $300,000 in accounts
receivable from Creative.
In August 1996, the Company issued 769,853 shares of common stock and a
warrant to purchase up to an additional 452,855 shares of common stock at a
price of $5.50 per share for a six year period expiring in August 2002 to
Motorola , Inc. ("Motorola") raising $3,993,864, net of offering costs. In the
event the Company consummates an underwritten public offering of its common
stock at a price of at least $7.00 per share resulting in the receipt by the
Company of net proceeds of not less than $10,000,000, the Company, at its
option, upon not less than 20 business days notice given prior to the planned
closing date of such public offering, may require Motorola to exercise the
warrant, provided, however, that within 15 business days of receipt of the
Company's notice, Motorola may elect to cancel the warrant unexercised. On March
26, 1997 Motorola advised the Company that it will exercise the warrant in full
upon consummation of the Company's initial public offering provided that the
offering meets the criteria set forth above.
Employees exercised stock options to purchase 53,000 shares of common stock
for $132,500 during the year ended 1996.
The Company has authorized 1,000,000 shares of preferred stock, $.01 par
value. No shares of preferred stock have been issued.
Shareholders owning 5,100,000 shares of the Company's common stock have
entered into a Shareholders Agreement which, among other matters, provides for
restrictions on the sale or transfer of shares by such shareholders and
specifies procedures for the election of directors. The Shareholders Agreement
terminates upon the consummation of an initial public offering by the Company.
4. PROPERTY AND EQUIPMENT
DECEMBER 31, DECEMBER 31,
1995 1996
--------------- -------------
Computer equipment ....................... $25,759 $1,029,808
Furniture, fixtures and office equipment .. 5,531 155,673
Leasehold improvements .................... - 62,643
-------- ----------
Property and equipment, cost .............. 31,290 1,248,124
Accumulated depreciation ................. - (198,172)
-------- ----------
Property and equipment, net .............. $31,290 $1,049,952
======== ==========
Depreciation expense during 1995 and 1996 was $0 and $198,172, respectively.
F-10
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. STOCK BASED COMPENSATION
THE COMPANY MAY GRANT STOCK OPTIONS UNDER THE 1995 STOCK OPTION PLAN (THE
"PLAN) TO KEY employees, consultants, officers and directors for up to 2.7
million shares of common stock. Under the Plan, the exercise price of each
option must not be less than the fair market value of the Company's stock on the
date of grant and an option's maximum term is 10 years. Incentive stock options
vest equally over 3 years beginning on the first anniversary date of the grant,
while non-statutory options vest over various periods.
A summary of the status of the Plan as of December 31, 1995 and 1996, and
changes during the periods ended on those dates is presented below:
<TABLE>
<CAPTION>
DECEMBER 8, 1995 TO YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------------- ------------------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- ----------------- ----------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period ...... - - 550,000 $1.00
Granted ................................. 550,000 $1.00 1,620,500 3.24
Exercised .............................. - - 53,000 2.50
Canceled .............................. - - 132,000 1.36
-------- ----- ---------- ------
Outstanding at end of year ............... 550,000 $1.00 1,985,500 $2.76
======== ===== ========== ======
Options exercisable at year-end ......... 150,000 1,149,997
Weighted-average fair value of options
granted during the year .................. $ - $0.83
</TABLE>
The following table summarizes information about employee stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -----------------------------------
WEIGHTED-AVERAGE
RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------------- -------------- --------------------------- ------------------- -------------- ------------------
<S> <C> <C> <C> <C> <C>
$1.00 450,000 9.0 $1.00 249,997 $1.00
2.50 1,132,500 9.1 2.50 900,000 2.50
5.05 to 5.50 403,000 9.7 5.47 - -
--------------- ---------- ---- ------ ---------- ------
$ 1.00 to 5.50 1,985,500 9.2 $2.76 1,149,997 $2.17
================ ========== ==== ====== ========== ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations in measuring stock
based compensation, including options. Accordingly, no compensation expense has
been recognized for options granted under the Plan. Had compensation expense
been determined based upon the fair value at the grant date for awards under the
Plan consistent with SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company's net loss ,on a pro forma basis, for 1995 and 1996 would have been
$292,183 or $0.04 per share and $3,122,726 or $0.38 per share, respectively.
The fair value of each employee stock option grant has been estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions: dividend yield 0%, expected volatility 0%, risk-free
interest rates ranging between 5.39% and 6.77%, and an expected life of 5 years.
F-11
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES
THE COMPANY LEASES ITS OFFICE FACILITY AND CERTAIN EQUIPMENT UNDER
OPERATING LEASES WITH REMAINING lease terms in excess of one year. Future
minimum lease payments as of December 31, 1996 are as follows:
YEAR ENDING DECEMBER 31,
- --------------------------
1997 ..................... $138,025
1998 ..................... 142,086
1999 ..................... 137,734
2000 ..................... 5,713
---------
$423,558
=========
Rent expense for the periods ended December 31, 1995 and 1996 was $1,000
and $67,000, respectively.
In September 1996, the Company established a 401(k) deferred compensation
plan for all employees meeting certain service requirements. The Company matches
employee contributions to the Plan at its discretion. No matching contributions
were made during the year ended December 31, 1996. The Company pays the
administrative costs of the plan.
The Company has entered into employment agreements with six officers with
initial salaries aggregating $735,000 annually. The terms of these agreements
are for two years.
The Company has entered into Indemnification Agreements with each of the
existing directors and officers, which provides for the maximum indemnification
permitted by law.
The Company may, from time to time, be involved in certain legal actions
arising in the ordinary course of business. In the opinion of management, the
outcome of such actions known to date will not have a material adverse effect on
the Company's financial position or results of operations.
Elk Industries has asserted, in a letter to the Company, just prior to the
November 1996 expiration of U.S. Patent No. 4,128,773, owned by Elk Industries,
that the Company's WebPhone client software product infringed the now expired
patent. Given the initial distribution of the Company's WebPhone client
software prior to expiration of the asserted patent, the Company believes any
potential liability related to the allegation is not significant. Accordingly,
the Company believes that this matter will not have a material effect on its
financial position or results of operations.
At present, there are few laws or regulations that specifically address
access to or commerce on the Internet. The increasing popularity and use of the
Internet, however, enhance the risk that the governments of the United States
and other countries in which the Company sells or expects to sell its products
will seek to regulate computer telephony and the Internet with respect to, among
other things, user privacy, pricing and the characteristics and quality of
products and services . The Company is unable to predict the impact, if any,
that future legislation, legal decisions or regulations may have on its
business, financial condition or results of operations.
F-12
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
7. INCOME TAXES
THE COMPANY'S PROVISION FOR INCOME TAXES CONSISTS OF THE FOLLOWING:
DECEMBER 31,
1996
--------------
Current-Foreign ...... $ 225,000
Deferred-Foreign ...... (182,000)
---------
$ 43,000
=========
Income taxes for the year ended December 31, 1996 were attributable to
income taxes paid to the Singapore government related to license fees received
pursuant to an agreement with Creative.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and their income tax bases. As of December 31, 1995 and 1996, the
Company had deferred tax assets as follows:
DECEMBER 31, DECEMBER 31,
1995 1996
--------------- --------------
Deferred tax assets:
Unearned revenue-foreign ............... $ - $ 182,000
Net operating loss carryforwards ...... 110,000 1,291,000
Valuation allowance ..................... (110,000) (1,291,000)
--------- -----------
Net deferred tax asset ............... $ - $ 182,000
========= ===========
The valuation allowance is based on the uncertainty as to the utilization
of the net operating loss carryforwards due to the Company's short operating
history and losses to date.
As of December 31, 1996, the Company had approximately $ 3,254,000 of
federal and state net operating loss carryforwards available to offset future
taxable income; such carryforwards begin to expire in 2009. Under the Tax Reform
Act of 1986, the amounts of and benefits from net operating losses carried
forward may be impaired or limited in certain circumstances. Events which may
cause limitations in the amount of net operating losses that the Company may
utilize in any one year include, but are not limited to, a cumulative ownership
change of more than 50% over a three year period. As of December 31, 1996, the
effect of such limitations, if imposed, is not expected to be material.
F-13
<PAGE>
================================================================================
No dealer, salesperson, or any other person has BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF OR SINCE THE DATES AS OF WHICH INFORMATION IS SET FORTH HEREIN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION.
---------
TABLE OF CONTENTS
PAGE
------
Prospectus Summary ........................... 3
Risk Factors ................................. 7
Use of Proceeds .............................. 13
Dividend Policy .............................. 13
Dilution .................................... 14
Capitalization .............................. 15
Selected Consolidated Financial Data ......... 16
Management's Discussion and
Analysis of Financial Condition
and Results of Operations .................. 17
Business .................................... 20
Management ................................. 31
Certain Transactions ........................ 36
Principal Shareholders ..................... 37
Description of Capital Stock ............... 38
Shares Eligible for Future Sale ............ 40
Underwriters ................................. 41
Legal Matters .............................. 42
Experts .................................... 43
Additional Information ..................... 43
Index to Consolidated Financial Statements ... F-1
UNTIL , 1997, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
<PAGE>
===============================================================================
2,000,000 Shares
[GRAPHIC OMITTED]
Common Stock
-------------------
P R O S P E C T U S
-------------------
JOSEPHTHAL LYON & ROSS
CRUTTENDEN ROTH
, 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the issuance and distribution of the securities offered hereby
(other than underwriting discounts and commissions). The Registrant is
responsible for the payment of all expenses in connection with the Offering.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ........................ $7,697
NASD filing fee ............................................................ 3,040
Listing fee .................................................................. *
Printing and engraving expenses ............................................. *
Legal fees and expenses ...................................................... *
Accounting fees and expenses ................................................ *
Blue Sky fees ............................................................... *
Transfer Agent's fees and expenses ........................................... *
Directors and Officer's Insurance Premiums, relating to Initial Public
Offering..................................................................... *
Miscellaneous ............................................................... *
-------
Total: .................................................................. $ *
=======
</TABLE>
- ----------------
* To be filed by amendment
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the ___________________listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant has authority under Section 607.0850 of the Florida Business
Corporation Act to indemnify its directors and officers to the extent provided
for in such statute. The Registrant's Amended and Restated Articles of
Incorporation and Bylaws provide that the Registrant may insure, shall indemnify
and shall advance expenses on behalf of its officers and directors to the
fullest extent not prohibited by law. The Company is also a party to
indemnification agreements with each of its directors and officers. The form of
Underwriting Agreement filed as Exhibit 1.1 hereto provides for the
indemnification of the Registrant and its directors and officers against certain
liabilities, including liabilities under the Securities Act.
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES.
The following sets forth the Registrant's sale of its securities within
the last three years, which securities were not registered under the Securities
Act:
1. Upon incorporation of the Company in December 1995, the Company sold an
aggregate of 2,950,000 shares of Common Stock to various executive officers,
directors and advisors for an aggregate of $590,000, including 1,750,000 shares
to Stephen R. Cohen, 500,000 shares to Robert Kennedy, 250,000 shares to Harvey
Kaufman, and 100,000 shares to each of L. Richard Mattaway and A. Jeffry
Robinson.
2. In December 1995, upon the acquisition by the Company of all of issued
and outstanding capital stock of Internet Telephone Company ("ITC") by
merger of ITC with a wholly-owned subsidiary of the Company, in connection
therewith, the Company issued an aggregate of 2,500,000 shares of Common Stock
to the shareholders of ITC in exchange for their ITC shares, including 1,000,000
shares to an affiliate of L. Richard Mattaway and 850,000 shares to Shane D.
Mattaway.
3. In January and February 1996, the Company sold an aggregate of 1,204,000
shares of Common Stock at a price of $2.50 per share to 53 persons in a private
offering for an aggregate of $3,010,000. No
II-1
<PAGE>
commissions were paid in connection with such private offering. In January 1996,
the Company issued stock options under the 1995 Plan to purchase 250,000 shares
of Common Stock for $2.50 per share to a consulting firm, which assisted the
Company with its private offering.
4. From January to April, 1996, the Company issued an aggregate of 53,000
shares of Common Stock to six employees pursuant to the exercise of stock
options.
5. In January, 1996, the Company issued an aggregate of 14,000 shares of
Common Stock to an investment banking firm which assisted the Company in
establishing certain of its strategic alliances.
6. In June 1996, the Company sold 207,679 shares of Common Stock to
Creative Technology, Ltd. ("Creative") for an aggregate of $1,048,779. The
Company also issued to Creative a warrant to purchase up to an additional
207,679 shares of Common Stock at a price of $5.05 per share, which warrant is
only exercisable if Creative distributes, during a specified period, a
predetermined quantity of the Company's Internet telephone client software
product licensed to Creative.
7. In August 1996, the Company sold 769,853 shares of Common Stock and a
warrant to purchase up to an additional 452,855 shares of Common Stock at a
price of $5.50 per share for a six-year period expiring in August 2002 (the
"Motorola Warrant") to Motorola, Inc. ("Motorola") for an aggregate
of $4,234,191. In the event the Company consummates an underwritten public
offering of its Common Stock at a price of at least $7.00 per share resulting in
the receipt by the Company of net proceeds of not less than $10,000,000, the
Company, at its option, upon not less than 20 business days' notice given prior
to the planned closing date of such public offering, may require Motorola to
exercise the Motorola Warrant, provided, however, that within 15 business days
of receipt of the Company's notice, Motorola may elect to cancel the Motorola
Warrant unexercised. Motorola has advised the Company that it will exercise the
Motorola Warrant in full upon consummation of this Offering, provided that the
Offering meets the criteria set forth above.
The above securities were all issued without registration under the
Securities Act by reason of the exemption from registration afforded by the
provisions of Section 4(2) thereof, as transactions by an issuer not involving a
public offering, each recipient of securities having delivered appropriate
investment representations to Registrant with respect thereto and having
consented to the imposition of restrictive legends upon the certificates
evidencing such securities.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.(1)
3.1 Certificate of Incorporation, as amended.(1)
3.2 Bylaws.(1)
4.1 Specimen Certificate of Common Stock.(2)
4.2 Form of Advisors' Warrant Agreement including Form of Advisors' Warrants.(1)
5.1 Opinion of Broad and Cassel.(2)
10.1 1995 Stock Option Plan, as amended.(1)*
10.2 Form of Indemnification Agreement between the Registrant and each of its directors and
executive officers.(1)*
10.3 Employment Agreement between the Registrant and Stephen R. Cohen.(1)*
10.4 Employment Agreement between the Registrant and Robert Kennedy.(1)*
10.5 Employment Agreement between the Registrant and Shane D. Mattaway.(1)*
10.6 Employment Agreement between the Registrant and John W. Staten.(1)*
10.7 Employment Agreement between the Registrant and Harvey Kaufman.(1)*
10.8 Employment Agreement between the Registrant and Steven F. Mills.(1)*
10.9 Leases relating to premises at 902 Clint Moore Road, Boca Raton, Florida.(1)
10.10 Common Stock and Warrant Purchase Agreement between the Registrant and Motorola,
Inc.(2)
10.11 Right of First Negotiation Agreement between the Registrant and Motorola, Inc.(2)
10.12 Common Stock and Warrant Purchase Agreement between the Registrant and Creative
Technology, Ltd.(2)
10.13 Technology Development and Licensing Agreement between the Registrant and Creative
Laboratories, Inc., as amended.(2)(3)
10.14 Distributor Agreement between Rockwell International Corporation, Switching Systems
Division, and NetSpeak dated January 30, 1997(2)(3)
11.1 Net loss per share computation(2)
21.1 List of Subsidiaries of the Registrant.(1)
23.1 Consent of Broad and Cassel (filed as part of Exhibit 5.1)(2)
23.2 Consent of Deloitte & Touche LLP, independent auditors.(2)
23.3 Consent of Michael B. Goldberg(2)
24.1 Powers of Attorney(1)
</TABLE>
- ----------------
* Management compensation plan or arrangement
(1) Previously filed.
(2) Filed herewith.
(3) A request for confidential treatment pursuant to Rule 406 under the
Securities Act has been made for certain portions of this Exhibit.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed
II-3
<PAGE>
with the Commission pursuant to Rule 42(b) if, in the aggregate, the changes
in volumes and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) Include any additional or changed material information on the plan
of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in such
names as required by the underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense or any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(6) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(7) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Company certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form S-1 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Boca Raton, State of Florida on this 8th day of April, 1997.
NETSPEAK CORPORATION
By: /s/ STEPHEN R. COHEN
--------------------------------------
Stephen R. Cohen, Chairman of the Board
and Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the following persons in
the capacities and on the date stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- ------------------------------- ----------------
<S> <C> <C>
/s/ STEPHEN R. COHEN Chairman of the Board April 8, 1997
- ------------------------------ and Chief Executive Officer
Stephen R. Cohen (Principal Executive Officer)
/s/ JOHN W. STATEN Chief Financial Officer April 8, 1997
- ------------------------------ (Principal Financial and
John W. Staten Accounting Officer)
/s/ * President, Chief Operating April 8, 1997
- ------------------------------ Officer and Director
Robert Kennedy
/s/ * Executive Vice President, April 8, 1997
- ------------------------------ Chief Technical Officer
Shane D. Mattaway and Director
/s/ * Director April 8, 1997
- ------------------------------
Steven D. Leeke
/s/ * Director April 8, 1997
- ------------------------------
A. Jeffry Robinson
</TABLE>
- ----------------
* By: /s/ Stephen R. Cohen
-----------------------
Stephen R. Cohen
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- --------- -----------
4.1 Specimen Certificate of Common Stock.
5.1 Opinion of Broad and Cassel.
10.10 Common Stock and Warrant Purchase Agreement between the Registrant and
Motorola, Inc.
10.11 Right of First Negotiation Agreement between the Registrant and Motorola,
Inc.
10.12 Common Stock and Warrant Purchase Agreement between the Registrant and
Creative Technology, Ltd.
10.13 Technology Development and Licensing Agreement between the Registrant and
Creative Laboratories, Inc., as amended.
10.14 Distributor Agreement between Rockwell International Corporation,
Switching Systems Division, and NetSpeak dated January 30, 1997
11.1 Net loss per share computation
23.2 Consent of Deloitte & Touche LLP, independent auditors.
23.3 Consent of Michael B. Goldberg
COMMON STOCK COMMON STOCK
NUMBER SHARES
NC NETSPEAK CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 64115D 10 9
This Certifies that
is the Registered Holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF
NETSPEAK CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
CHAIRMAN OF THE BOARD NETSPEAK CORPORATION SECRETARY
CORPORATE
SEAL
1995
FLORIDA
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY AUTHORIZED SIGNATURE
<PAGE>
NETSPEAK CORPORATION
The Corporation will furnish to any shareholder upon request and without charge
a full statement of: (a) the designations, relative rights, preferences and
limitations applicable to each class of capital stock authorized to be issued;
(b) the variation in rights, preferences and limitations determined for each
series authorized to be issued within each such class; and (c) the authority of
the Board of Directors to determine such variations for subsequent series.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - (Cust)_________ Custodian (Minor)_______ under Uniform Gifts
to Minors Act (State)___________
Additional abbreviations may also be used though not in the above list.
For Value Received___________hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------------------------------------
(PLEASE PRINT OR TYPE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
_____________________ shares of the capital stock represented by the
within Certificate and does hereby irrevocably constitute and appoint__________
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated_________________________ SIGNED:_______________________________
SIGNED:_______________________________
NOTICE: The signature(s) on this
assignment must conform in all respects
with the name as written upon the face
of the certificate.
IMPORTANT: SIGNATURE(S) MUST BE GUARANTEED BY A FIRM THAT IS A MEMBER OF A
REGISTERED NATIONAL STOCK EXCHANGE OR BY A COMMERCIAL BANK OR A TRUST COMPANY.
March __, 1997
NetSpeak Corporation
902 Clint Moore Road, Suite 104
Boca Raton, Florida 33487
Re: NETSPEAK CORPORATION (THE "COMPANY")
REGISTRATION STATEMENT ON FORM S-1
SEC FILE NUMBER 333-22123 (THE "REGISTRATION STATEMENT")
Ladies and Gentlemen:
You have requested our opinion with respect to the shares of the
Company's common stock, $.01 par value per share (the "Common Stock"), the
Advisors' warrants to purchase shares of Common Stock (the "Warrants"), and the
shares of Common Stock underlying the Warrants (the "Warrant Shares"), included
in the Registration Statement filed with the U.S. Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Securities
Act").
As counsel to the Company, we have examined the original or certified
copies of such records of the Company, and such agreements, certificates of
public officials, certificates of officers or representatives of the Company and
others, and such other documents as we deem relevant and necessary for the
opinions expressed in this letter. In such examination, we have assumed the
genuineness of all signatures on original documents, and the conformity to
original documents of all copies submitted to us as conformed or photostatic
copies. As to various questions of fact material to such opinions, we have
relied upon statements or certificates of officials and representatives of the
Company and others.
Based on, and subject to the foregoing, we are of the opinion that,
when the shares of Common Stock, the Warrants and the Warrant Shares are issued
and delivered in accordance with the terms of the agreements related thereto,
all filed as exhibits to the Registration Statement, such securities will
<PAGE>
be duly and validly issued, and the Common Stock and Warrant Shares will be
fully paid and non-assessable.
In rendering this opinion, we advise you that members of this Firm are
members of the Bar of the State of Florida, and we express no opinion herein
concerning the applicability or effect of any laws of any other jurisdiction,
except the securities laws of the United States of America referred to herein.
This opinion has been prepared and is to be construed in accordance
with the Report on Standards for Florida Opinions, dated April 8, 1991, issued
by the Business Law Section of The Florida Bar (the "Report"). The Report is
incorporated by reference into this opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the use of our name under the caption
"Legal Matters" in the Prospectus constituting part of the Registration
Statement. In giving such consent, we do not thereby admit that we are included
within the category of persons whose consent is required under Section 7 of the
Securities Act, or the rules and regulations promulgated thereunder.
Very truly yours,
BROAD AND CASSEL
EXHIBIT 10.10
- -------------------------------------------------------------------------------
NETSPEAK CORPORATION
COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
AUGUST 28, 1996
- -------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<C> <C>
1. Purchase and Sale of Common Stock and Warrant...........................................1
and Issuance of Common Stock and Warrant................................................1
1.2 Closing........................................................................1
2. Representations and Warranties of the Company and the Subsidiary........................1
2.1 Organization, Good Standing and Qualification..................................1
2.2 Capitalization.................................................................2
2.3 Subsidiaries...................................................................2
2.4 Authorization..................................................................2
2.5 Valid Issuance of Securities...................................................3
2.6 Governmental Consents..........................................................3
2.7 Litigation.....................................................................3
2.8 Employee Agreements............................................................4
2.9 Patents and Trademarks.........................................................4
2.10 Compliance with Other Instruments..............................................5
2.11 Agreements; Actions............................................................5
2.12 Disclosure.....................................................................6
2.13 Rights of Registration.........................................................6
2.14 Title to Property and Assets...................................................6
2.16 Employee Benefit Plans.........................................................8
2.17 Tax Returns and Payments.......................................................8
2.18 Insurance......................................................................9
2.19 Labor Agreements and Actions...................................................9
2.20 Employees......................................................................9
2.21 No Conflict of Interest.......................................................10
2.22 Offering of Stock.............................................................10
2.23 Use of Proceeds...............................................................10
2.24 Suppliers and Customers.......................................................10
2.25 Environmental Matters.........................................................10
2.26 Absence of Certain Proceedings................................................10
3. Representations and Warranties of Motorola.............................................11
3.1 Authorization.................................................................11
3.2 Purchase Entirely for Own Account.............................................12
3.3 Available Information.........................................................12
3.4 Non-Registration..............................................................12
3.5 Restricted Securities.........................................................12
3.6 Legends.......................................................................12
3.7 Accredited Investor...........................................................13
i
<PAGE>
4. Conditions of Motorola's Obligations at Closing........................................13
4.1 Representations and Warranties................................................13
4.2 Performance...................................................................13
4.3 Proceedings and Documents.....................................................13
4.4 Opinion of Company Counsel....................................................13
4.5 Rights Agreement..............................................................13
4.6 Proprietary Information Agreement.............................................13
4.7 Opinion of Patent Counsel.....................................................13
4.8 Shareholders Agreement........................................................13
4.9 Right of Negotiation Agreement................................................14
5. Conditions of the Company's Obligations at Closing.....................................14
5.1 Representations and Warranties................................................14
5.2 Rights Agreement..............................................................14
6. Affirmative Covenants of the Company...................................................14
6.1 Reports and Information.......................................................14
6.2 Employee Agreements...........................................................15
6.3 Corporate Existence...........................................................15
6.4 Licenses, Permits and Franchises..............................................15
6.5 Properties....................................................................15
6.6 Insurance.....................................................................16
6.7 Records - Financial Statements................................................16
6.8 Inspection....................................................................16
6.9 Payment of Taxes..............................................................16
6.10 Other Information.............................................................16
6.11 Environmental Matters.........................................................17
6.12 Statutory Compliance..........................................................17
6.13 Contractual Compliance........................................................17
6.14 Full Compliance...............................................................17
6.15 Conduct of Business...........................................................17
6.16 Publicity.....................................................................17
6.17 Director and Observer Rights..................................................18
7. Negative Covenants of the Company......................................................18
7.1 Properties....................................................................18
7.2 Merger, Consolidation.........................................................19
7.3 Directors.....................................................................19
7.4 Company Plans.................................................................19
7.5 Issuance of Preferred Stock...................................................19
ii
<PAGE>
8. Miscellaneous..........................................................................19
8.1 Survival of Warranties........................................................19
8.2 Transfer; Successors and Assigns..............................................19
8.3 Governing Law.................................................................19
8.4 Counterparts..................................................................19
8.5 Titles and Subtitles..........................................................20
8.6 Notices.......................................................................20
8.7 Finder's Fee..................................................................20
8.8 Expenses......................................................................20
8.9 Amendments and Waivers........................................................20
8.10 Severability..................................................................21
8.11 Entire Agreement..............................................................21
</TABLE>
iii
<PAGE>
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is
made August 28, 1996 by and among Netspeak Corporation, a Florida corporation
(the "Company"), Internet Telephone Company, a Florida corporation and a wholly
owned subsidiary of the Company (the "Subsidiary") and Motorola, Inc., a
Delaware corporation ("Motorola").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF COMMON STOCK AND WARRANT
1.1 SALE AND ISSUANCE OF COMMON STOCK AND WARRANT. Subject to
the terms and conditions of this Agreement, Motorola agrees to purchase at the
Closing (as defined below) and the Company agrees to sell and issue to Motorola
at the Closing an aggregate of 769,853 shares of the Company's Common Stock (the
"Stock") at a purchase price of $5.50 per share, for an aggregate purchase price
of $4,234,191 (the "Purchase Price"). The shares of Common Stock issued to
Motorola pursuant to this Agreement shall be hereinafter referred to as the
"Stock." In addition, at the Closing, the Company agrees to issue to Motorola a
warrant (the "Warrant") to purchase up to an aggregate of 452,855 additional
shares of the Company's Common Stock (the "Warrant Shares") at an exercise price
of $5.50 per share. The Stock, the Warrant and the shares of Common Stock
issuable upon exercise of the Warrant are collectively referred to herein as the
"Securities."
1.2 CLOSING. The purchase and sale of the Stock shall take
place at the offices of Broad and Cassel, 201 South Biscayne Boulevard, Suite
3000, Miami, Florida 33131, on August 28, 1996, or at such other time and place
as the Company and Motorola mutually agree upon, orally or in writing (which
time and place are designated as the "Closing"). At the Closing, the Company
shall deliver to Motorola a certificate representing the Stock being purchased
thereby and the Warrant against payment of the Purchase Price therefor, by wire
transfer to the Company's bank account. In addition, the Company and Motorola
shall enter into an Investor's Rights Agreement (the "Rights Agreement") and a
Right of Negotiation Agreement (the "Right of Negotiation Agreement"), and the
Shareholders Agreement referred to in Section 4.8 below shall be amended. The
additional documents referred to in Section 4 shall also be executed and
delivered at the Closing.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SUBSIDIARY.
The Company and the Subsidiary each hereby jointly and severally represents and
warrants to Motorola that, except as set forth on a Schedule of Exceptions
attached hereto as Exhibit A, specifically identifying the relevant section
hereof, which exceptions shall be deemed to be representations and warranties as
if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each
of the Company and the Subsidiary is a corporation duly organized, validly
existing and in good standing under the
<PAGE>
laws of the State of Florida and has all requisite corporate power and authority
to carry on its business as now conducted and as proposed to be conducted. Each
of the Company and the Subsidiary is duly qualified to transact business and is
in good standing in each Jurisdiction in which the failure so to qualify would
have a material adverse effect on the business, prospects, condition (financial
or otherwise), affairs, operations, properties or assets of the Company and the
Subsidiary, taken as a whole (a "Material Adverse Effect"). The Company has
furnished Motorola with copies of its and the Subsidiary's Articles of
Incorporation, as amended (the "Articles") and Bylaws. Said copies are true,
correct and complete and contain all amendments through the Closing Date. Each
of the Company and the Subsidiary has all requisite legal and corporate power to
own, lease and operate its property and assets and to carry on its business as
presently conducted.
2.2 CAPITALIZATION. The authorized capital of the
Company consists, or will consist, immediately following the Closing, of:
(a) COMMON STARK. 25,000,000 shares of Common
Stock, 7,698,532 shares of which will be issued and outstanding immediately
following the Closing (giving effect to the transactions contemplated hereunder)
to the persons listed on the Schedule of Shareholders attached hereto as Exhibit
B. The outstanding shares of Common Stock are all duly and validly authorized
and issued and were issued in accordance with the registration or qualification
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(b) PREFERRED STOCK. 1,000,000 shares of
Preferred Stock, none of which will be issued and outstanding.
(c) DERIVATIVE SECURITIES. Other than warrants
issued to Creative Technology Ltd. to purchase 207,679 shares of Common Stock
(the "Creative Warrants") and options issued to officers, directors and
employees of, and consultants to, the Company to acquire 2,019,500 shares of
Common Stock, there are no outstanding options, warrants, rights (including
conversion or preemptive rights) or agreements, orally or in writing, for the
purchase or acquisition from the Company of any shares of its capital stock. The
Company has reserved 2,200,000 shares of Common Stock for issuance (of which
50,000 shares have been issued on exercise of stock options), at the discretion
of the Board of Directors, to officers, directors, employees and consultants
pursuant to stock option plans adopted by the Company.
2.3 SUBSIDIARIES. The Company does not currently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity other than the Subsidiary. The authorized
capital stock of the Subsidiary consists of 1,000 shares of Common Stock, 100
shares of which are issued and outstanding, all of which are held by the
Company.
2.4 AUTHORIZATION. All corporate action on the part of
the Company and the Subsidiary, their respective officers, directors and
shareholders necessary for the authorization,
-2-
<PAGE>
execution and delivery of (i) this Agreement and (ii) the Rights Agreement, the
Right of First Negotiation Agreement and the amendment to the Shareholders
Agreement contemplated by Section 4.8 (collectively, the "Ancillary
Agreements"), the performance of all obligations of each of the Company and the
Subsidiary hereunder and thereunder and the authorization, issuance and delivery
of the Securities has been taken or will be taken prior to the Closing, and this
Agreement and the Ancillary Agreements constitute valid and legally binding
obligations of each of the Company and the Subsidiary, enforceable against the
Company or the Subsidiary in accordance with their terms, subject to applicable
bankruptcy, moratorium and other laws affecting creditors rights generally and
to the application by a court of general principles of equity.
2.5 VALID ISSUANCE OF SECURITIES. The Stock being, issued to
Motorola hereunder, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly and validly issued,
fully paid and nonassessable. The Warrant being issued to Motorola hereunder,
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued. Based in part
upon the representations of Motorola in this Agreement and subject to the
provisions of Section 2.6 below, the Securities will be issued in compliance
with all applicable federal and state securities laws. The Warrant Shares
issuable upon exercise of the Warrant have been duly and validly reserved for
issuance and, when issued and delivered in accordance with the terms of the
Warrants, shall be duly and validly issued, fully paid and non-assessable. The
offer, sale and issuance of the Stock, the Warrant and the Warrant Shares
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act by virtue of Section 4(2) thereof and will be issued in
compliance with all applicable state securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company or the Subsidiary is required in connection
with the valid execution and delivery of this Agreement and the Ancillary
Agreements, or the offer, sale or issuance of the Stock and the Warrant (and the
Warrant Shares issuable upon exercise of the Warrant), or the consummation of
any other transaction contemplated hereby and by the Ancillary Agreements,
except for consents required under applicable "blue sky" laws (which will be
obtained by Closing).
2.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge and the
Subsidiary's knowledge, currently threatened against the Company or the
Subsidiary that questions the validity of this Agreement or the Ancillary
Agreements or the right of the Company or Subsidiary to enter into them, or to
consummate the transactions contemplated hereby or thereby, or that might
result, either individually or in the aggregate, in any Material Adverse Effect,
or any change in the current equity ownership of the Company or the Subsidiary,
nor is the Company or the Subsidiary aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company or the Subsidiary)
involving the prior employment of any of the Company's or the Subsidiary's
employees, their use in
-3-
<PAGE>
connection with the Company's or the Subsidiary's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. Neither the Company nor
the Subsidiary is a party, or subject to the provisions of any writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit, proceeding, or investigation by the Company or the
Subsidiary currently pending or which the Company or the Subsidiary currently
intends to initiate.
2.8 EMPLOYEE AGREEMENTS. Each officer and software engineer
employed by the Company or the Subsidiary ("key employee") has executed or prior
to the Closing will execute an agreement with the Company regarding
confidentiality and proprietary information (the "Proprietary Information
Agreement"). Each of the Company and the Subsidiary is not aware that any of its
employees are in violation thereof, and each of the Company and the Subsidiary
will use its best efforts to prevent any such violation. There are no other
written or oral agreements with employees.
2.9 PATENTS AND TRADEMARKS. Exhibit C sets forth all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes owned by or licensed to the Company or the
Subsidiary (collectively the "Company Intellectual Property"). The Company
Intellectual Property is sufficient for each of the Company and the Subsidiary
to conduct its business as now conducted and as currently proposed to be
conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company or the Subsidiary bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. No
royalties, fees, commissions or other payments are payable by the Company to
other persons or entities by reason of the ownership or use of the Company
Intellectual Property, provided that this provision shall not apply to the
payment of salary to persons in connection with the performance of services to
the Company or the Subsidiary. There is no pending or, to the best of their
knowledge, threatened claim or litigation against the Company or the Subsidiary
(nor does there exist any basis therefor) contesting the validity or right to
use of any of the foregoing. Neither the Company nor the Subsidiary has received
any written communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. Neither the Company nor the
Subsidiary is aware that any of its respective employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere in any material respect with the use
of his or her best efforts to promote the interests of the Company or the
Subsidiary or that would conflict with the Company's or the Subsidiary's
business as proposed to be conducted. Neither the execution nor delivery of this
Agreement and the Ancillary Agreements, nor the carrying on of the Company's or
the Subsidiary's business by their respective employees, nor the conduct of the
Company's or the Subsidiary's business as proposed, will, to the best knowledge
of each
-4-
<PAGE>
of the Company and the Subsidiary, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated.
Neither the Company nor the Subsidiary believes it is or will be necessary to
utilize any inventions of any of its respective employees (or persons it
currently intends to hire) made prior to their employment by the Company or the
Subsidiary, as applicable, except where the Company has acquired the rights to
the foregoing.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS. Neither the Company
nor the Subsidiary is in violation or default of (i) any provisions of its
Articles or Bylaws or (ii) of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound or, (iii) any provision
of federal or state statute, rule or regulation applicable to it, which
violation or default, in the case of (ii) and (iii), would have a Material
Adverse Effect. The execution, delivery and performance of this Agreement and
the Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of notice, either
a default under any such provision, instrument, judgment, order, writ, decree or
contract or an event which results in a Material Adverse Effect.
2.11 AGREEMENTS; ACTIONS.
(a) There are no agreements, understandings or
proposed transactions between the Company or the Subsidiary and any of its
respective shareholders, officers or directors or their respective spouses,
affiliates, or any affiliate thereof.
(b) Except for agreements explicitly
contemplated hereby, there are no agreements, understandings, instruments,
contracts (collectively "Contracts") or proposed transactions to which the
Company or the Subsidiary is a party or by which it is bound that involve (i)
obligations of, or payments to it in excess of, $50,000, or (ii) the license of
any patent, copyright, trade secret or other proprietary right to or from it.
(c) Neither the Company nor the Subsidiary is
in default of any Contracts which would have a Material Adverse Effect nor is
such a default currently anticipated. Each of the Company and the Subsidiary is
capable of performing each of its Contracts.
(d) Neither the Company nor the Subsidiary has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000, (iii) made any loans or advances to any person, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
-5-
<PAGE>
(e) Neither the Company nor the Subsidiary is a
party to and is not bound by any contract, agreement or instrument, or subject
to any restriction under its Articles or Bylaws, that has a Material Adverse
Effect.
(f) Neither the Company nor the Subsidiary is
currently engaged in negotiations or discussions (i) with any representative of
any corporation or corporations regarding the merger of it with or into any such
corporation or corporations, (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of its assets or a transaction or series
of related transactions in which more than Fifty percent (50%) of its voting
power is disposed of, or (iii) regarding any other form of liquidation,
dissolution or winding up of it.
2.12 DISCLOSURE. Each of the Company and the Subsidiary has
fully provided Motorola with all the information which Motorola has requested in
connection with the purchase of the Securities hereunder. No representation or
warrant,v of the Company or Subsidiary contained in this Agreement and the
Exhibits attached hereto, any certificate furnished or to be furnished to
Motorola at the Closing contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made. There is no material fact known to the Company or the
Subsidiary relating to their finances or operations that has not been disclosed
to Motorola in writing or in agreements or other documents made available to
Motorola to review.
2.13 RIGHTS OF REGISTRATION. Except as contemplated in the
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.14 TITLE TO PROPERTY AND ASSETS. Each of the Company and the
Subsidiary has good and marketable title to and owns its property and assets
(other than that leased by it) free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens which arise in the ordinary
course of business and do not materially impair its ownership or use of such
property or assets. With respect to the property and assets it leases, each of
the Company and the Subsidiary is in compliance with such leases in all material
respects and, to the best of its knowledge, holds a valid leasehold interest
free of any liens, claims or encumbrances, except such encumbrances and liens
which do not materially impact its use of the leased property. The owned and
leased real and tangible personal property of the Company and the Subsidiary is
sufficient for the conduct of the present business of the Company and the
Subsidiary. All accounts receivable and notes receivable, if any, are
receivables arising from bona fide transactions in the ordinary course of
business, and, net of an allowance, for returns, allowances, rebates, discounts
and doubtful accounts (which allowance is reflected in the Financial Statements
as defined below), and, to the knowledge of the Company and the Subsidiary, are
and will be good and fully collectible within ninety (90) days without resort to
legal process and with no other contingency attaching to such collectibility.
-6-
<PAGE>
2.15 FINANCIAL STATEMENTS; CHANGES. The Company has delivered
to Motorola its consolidated financial statements at December 31, 1995 and for
the fiscal year then ended (which have been audited by the Company's independent
accountants) and its unaudited consolidated financial statements (balance sheet,
profit and loss statements and cash flow statements) at June 30, 1996 and for
the three and six months then ended (collectively, the "Financial Statements").
The Financial Statements have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited statements, for
the absence of certain footnotes) applied on a consistent basis during the
periods involved and fairly present the consolidated financial position of the
Company and the Subsidiary as at the dates thereof and the consolidated results
of their operations and changes in stockholders' equity and cash flow for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the Financial Statements,
neither the Company nor the Subsidiary has any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise) which would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with generally accepted accounting principles, except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since June 30, 1996 which would not, individually
or in the aggregate, have a Material Adverse Effect. Since June 30, 1996, there
has not been:
(a) any occurrence which has had or could
reasonably be expected to have a Material Adverse Effect;
(b) any borrowing or agreement to borrow any
funds or material liability or obligation of any nature whatsoever (contingent
or otherwise) incurred by the Company or the Subsidiary, other than current
liabilities or obligations incurred in the ordinary course of business;
(c) any waiver, release or compromise of any
valuable right of the Company or the Subsidiary, or the cancellation of any debt
or claim held by the Company or the Subsidiary;
(d) any declaration or payment of dividends on,
or other distributions with respect to, or any direct or indirect redemption or
acquisition of, any shares of the capital stock of the Company or the
Subsidiary, or any agreement or commitment therefor;
(e) any encumbrance, mortgage, pledge, sale,
assignment or transfer of any tangible or intangible, including, but not limited
to, intellectual property rights, assets of the Company or the Subsidiary,
except, with respect to tangible assets, in the ordinary course of business;
(f) any loan by the Company or the Subsidiary to
any officer, director, employee or shareholder of the Company or the Subsidiary,
or any agreement or commitment therefor;
-7-
<PAGE>
(g) any increase, direct or indirect, in the
compensation paid or payable or any commitment or obligation to pay a bonus or
other additional compensation to any officer, director, employee or agent of the
Company or the Subsidiary except in accordance with past practice and in the
ordinary course of business;
(h) any change in the accounting methods or
practices followed by the Company or the Subsidiary;
(i) any loss contingencies (as such term is used
in Statement of Financial Accounting Standards No. 5 issued by the Financial
Accounting Standards Board in March 1975),
(j) any change in the contingent obligations of
the Company or the Subsidiary by way of guaranty, surety, endorsement,
indemnity, warranty, (other than customary product warranties) or otherwise,
(k) any damage, destruction or loss, whether or
not covered by insurance, having a Material Adverse Effect;
(l) any resignation or termination of employment
of any officer or key employee of the Company or the Subsidiary; or
(m) any agreement or commitment by the Company
or the Subsidiary to do any of the things described in clauses (a) through (1)
above.
2.16 EMPLOYEE BENEFIT PLANS. Neither the Company nor the
Subsidiary has Employee Benefit Plan as defined in the Employee Retirement
Income Security Act of 1974.
2.17 TAX RETURNS AND PAYMENTS. Each of the Company and
Subsidiary has filed all tax returns and reports as required by law. These
returns and reports are true and correct in all material respects. Each of the
Company and the Subsidiary has paid all taxes and other assessments due, except
those contested by it in good faith. The Company has paid in full or made
adequate provisions on its Financial Statements for all taxes, interest,
penalties, assessments or deficiencies shown to be due on such tax returns and
reports or claimed to be due by any taxing authority or otherwise due and owing,
including, without limitation, those due in respect of properties, income,
franchises, licenses, sales and payrolls. The Company has made all payments of
estimated income tax due through the date hereof and all withholdings of tax
required to be made under all applicable United States, state and local tax
regulations and such withholdings have either been paid to the respective
governmental agencies or set aside in accounts for such purpose or accrued,
reserved against and entered upon the books of the Company. Estimated income
taxes for the Company which are not yet due to be paid to the Internal Revenue
Service have been accrued, reserved against and entered upon the books of the
Company. The Company has not executed or filed with the Internal Revenue Service
or any other taxing authority, domestic or foreign, any agreement or other
document extending, or
-8-
<PAGE>
having the effect of extending, the period for assessment or collection of
taxes. There are no tax liens (other than liens for taxes for current and
subsequent years which are not yet due and delinquent) upon any properties or
assets of the Company, whether real, personal or mixed, tangible or intangible.
The Company does not have outstanding any power of attorney authorizing any
person to represent it before the Internal Revenue Service or before the taxing
authorities of any state or subdivision thereof with respect to any tax matter.
No election under Section 341(f) of the Internal Revenue Code of 1986 is in
effect with respect to any of the assets of the Company.
2.18 INSURANCE. Each of the Company and the Subsidiary, has in
full force and effect Fire and casualty insurance policies, with extended
coverage, sufficient in amount (subject to reasonable deductibles) to allow it
to replace any of Its properties that might be damaged or destroyed.
2.19 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor the
Subsidiary is bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company or the Subsidiary, has sought to represent
any of the employees, representatives or agents of the Company or the
Subsidiary. There is no strike or other labor dispute involving the Company or
the Subsidiary pending, or to the best knowledge of the Company and the
Subsidiary threatened, which could have a Material Adverse Effect nor is the
Company or the Subsidiary aware of any labor organization activity involving its
employees. Neither the Company nor the Subsidiary has received notice from any
union or employee setting forth demand for representation, election or for
present or future changes in wages, terms of employment or working condition.
Neither the Company nor the Subsidiary is aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company or the Subsidiary, nor does the Company or the
Subsidiary have a present intention to terminate the employment of any of the
foregoing. The employment of each officer and employee of the Company or the
Subsidiary is terminable at the will of the Company or the Subsidiary.
2.20 EMPLOYEES. To the best knowledge of the Company and the
Subsidiary, no employee or consultant of the Company or the Subsidiary is in
violation of any term of any employment, employment contract or any other
contract or agreement relating to the relationship of any such person with the
Company or the Subsidiary or any other party because of the nature of the
business conducted or to be conducted by the Company or the Subsidiary. To the
best knowledge of the Company and the Subsidiary, each of the Company and the
Subsidiary has complied in all material respects with all applicable state and
federal equal employment opportunity and other laws relating to employment.
Neither the Company nor the Subsidiary has any agreements or arrangements with
persons titled as independent contractors or consultants, as a result of which,
by virtue of the control exercised by the Company, the type of work performed by
the persons or any other circumstances, said persons could reasonably be deemed
to be employees of the Company.
-9-
<PAGE>
2.21 NO CONFLICT OF INTEREST. To the best of the knowledge of
the Company and the Subsidiary, none of the Company's or the Subsidiary's
officers or directors, or any members of their immediate families have any
direct or indirect ownership interest in any firm or corporation with which it
is affiliated or with which it has a business relationship, or any firm or
corporation which competes with it except that such officers, directors and/or
shareholders may own stock in publicly traded companies which may compete with
the Company or the Subsidiary. Neither the Company nor the Subsidiary is a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
2.22 OFFERING OF STOCK. Neither the Company nor the Subsidiary
has taken or will take any action which would subject the issuance or sale of
the Securities to the provisions of Section 5 of the Securities Act without
complying with Section 5 of the Securities Act or an exemption therefrom.
Neither the Company nor the Subsidiary has offered such Securities, or any
security or securities similar to any thereof, for sale to, or solicited any
offers to buy any of the foregoing from, or otherwise approached or negotiated
in respect thereof, any person or entity, so as to subject the offering of stock
to Section 5 of the Securities Act.
2.23 USE OF PROCEEDS. Attached hereto as Exhibit D is a
statement of the purposes to which the Company proposes to apply the proceeds of
the sale of the Stock to be issued and sold at the Closing.
2.24 SUPPLIERS AND CUSTOMERS. The Company has provided
Motorola with access to all of the Company's and the Subsidiary's supplier and
customer files.
2.25 ENVIRONMENTAL MATTERS. Each of the Company and the
Subsidiary has obtained all federal, state, and local environmental permits
necessary for carrying on its business and use of its properties, is in
compliance in all material respects with the terms and conditions of these
environmental permits, and is in compliance in all material respects with all
applicable federal, state, and local environmental statutory and regulatory
requirements. There are no pending environmental civil, criminal, or
administrative proceedings against the Company and to the best knowledge of the
Company, there are no threatened civil, criminal, or administrative proceedings
against the Company relating to environmental matters. To the best knowledge of
the Company and the Subsidiary, there is no fact or circumstance that could
reasonably be expected to give rise to any future civil, criminal, or
administrative proceedings against the Company relating to environmental
matters.
2.26 ABSENCE OF CERTAIN PROCEEDINGS. Neither the Company
nor the Subsidiary, nor, to the knowledge of the Company or the Subsidiary, any
of their current executive officers, directors or key employees, have, since
January 1, 1990:
(a) filed a petition, or had a petition filed
against it or them, under the Federal Bankruptcy laws or any state insolvency
law, or had a receiver, fiscal agent or similar officer appointed by a court for
its or their business or property, or for any partnership in which
-10-
<PAGE>
it or they were a general partner or any corporation or business association of
which it or they were an executive officer at or within two years before such
filing;
(b) been convicted in a criminal proceeding or
been named the subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses);
(c) been the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction permanently or temporarily enjoining it or them from, or
otherwise limiting the following activities:
(i) acting as an investment advisor,
underwriter, broker or dealer in securities, or as an affiliated person,
director or employee of any investment company, bank, savings and loan
association or insurance company, or engaging in or continuing any conduct or
practice in connection with such activity;
(ii) engaging in any type of business
practice; or
(iii) engaging in any activity in
connection with the purchase or sale of any security or in connection with any
violation of Federal or state securities law;
(d) been the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any Federal or state
authority barring, suspending or otherwise limiting its or their right to engage
in any activity described in (iii) above, or to be associated with persons
engaged in any such activity; or
(e) been found by a court of competent
jurisdiction in a civil action or by the Securities and Exchange Commission (the
"Commission") or any state securities administrator or commissioner to have
violated any Federal or state securities law, and the judgment in such civil
action or finding by the Commission or any state securities administrator or
commissioner has not been subsequently reversed, suspended or vacated.
3. REPRESENTATIONS AND WARRANTIES OF MOTOROLA. Motorola
represents and warrants to the Company and the Subsidiary that:
3.1 AUTHORIZATION. All corporate action on the part of
Motorola, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Ancillary
Agreements, and the performance of all obligations of Motorola hereunder and
thereunder has been taken or will be taken prior to the Closing, and this
Agreement and the Ancillary Agreements constitute valid and legally binding
obligations of Motorola, enforceable against Motorola in accordance with their
terms, subject to applicable bankruptcy, moratorium and other laws affecting
creditors rights generally and to the application by a court of general
principles of equity.
-11-
<PAGE>
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement and the
Rights Agreement are made with Motorola in reliance upon Motorola's
representation to the Company, which by Motorola's execution of this Agreement
Motorola hereby confirms, that the Securities to be acquired by Motorola will be
acquired for investment for Motorola's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
Motorola has no present intention of selling, granting any participation in, or
otherwise distributing the Securities. By executing this Agreement, Motorola
further represents that Motorola does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
3.3 AVAILABLE INFORMATION. Motorola has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of investment in the Company and of making an
informed investment decision.
3.4 NON-REGISTRATION. Motorola understands that the Securities
have not been, and will not be, registered under the Securities Act, by reason
of a specific exemption from the registration provisions of the Securities Act
which depends upon, among other things, the bona fide nature of the investment
intent and the accuracy of Motorola's representations as expressed herein.
Motorola has not been formed for the specific purpose of acquiring the
Securities.
3.5 RESTRICTED SECURITIES. Motorola understands that the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration under
the Securities Act only in certain limited circumstances. In this connection,
Motorola represents that it is familiar with Rule 144 promulgated under the
Securities Act ("Rule 144"), as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
3.6 LEGENDS. It is understood that the Securities, and any
securities issued in respect thereof or exchange therefor, may bear one or all
of the following legends:
(a) THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
(b) Any legend required by the "blue sky" laws
of any state to the extent such laws are applicable to the securities
represented by the certificate so legended.
-12-
<PAGE>
3.7 ACCREDITED INVESTOR. Motorola is an accredited
investor as defined in Rule 501(a) of Regulation D promulgated by the SEC under
the Securities Act.
4. CONDITIONS OF MOTOROLA'S OBLIGATIONS AT CLOSING. The
obligations of Motorola to the Company under this Agreement and the Rights
Agreement are subject to the fulfillment, on or before the Closing, of each of
the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 and in any certificate,
schedule, exhibit or other documents delivered pursuant to this Agreement shall
be true on and as of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and by the
Ancillary Agreements and all documents incident hereto and thereto shall be
reasonably satisfactory in form and substance to Motorola, and Motorola shall
have received all such counterpart original and certified or other copies of
such documents as Motorola may reasonable, request.
4.4 OPINION OF COMPANY COUNSEL. Motorola shall have
received from Broad and Cassel, counsel for the Company, an opinion, dated as of
the Closing, reasonably satisfactory to Motorola in form and substance.
4.5 RIGHTS AGREEMENT. The Company and Motorola shall
have executed and delivered the Rights Agreement.
4.6 PROPRIETARY INFORMATION AGREEMENT. The Company and
each officer, director and key employee of the Company shall have entered into a
Proprietary Information Agreement.
4.7 OPINION OF PATENT COUNSEL. The Company shall have
obtained a legal opinion, dated as of the Closing, as to the Company's
non-infringement of U.S. Patent No. 4,124,773 in form and substance reasonably
satisfactory to Motorola.
4.8 SHAREHOLDERS AGREEMENT. The Shareholders Agreement by and
among certain shareholders of the Company will be amended to provide that such
shareholders agree to nominate and vote their shares to elect as a member of the
Board of Directors of the Company, the designee of Motorola for the term
specifically provided for herein. Each of the shareholders will agree that for
so long as he remains a shareholder of the Company and the Company is required
to allow Motorola a seat on the Company's Board of Directors, he shall vote his
shares to maintain the Board of Directors so that it consists of Motorola's
designee.
-13-
<PAGE>
4.9 RIGHT OF NEGOTIATION AGREEMENT. The Company and
Motorola shall have entered into the Right of Negotiation Agreement.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to Motorola under this Agreement and the Rights
Agreement are subject to the fulfillment, on or before the Closing, of each of
the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Motorola contained in Section 3 shall be true on and as of the
Closing.
5.2 RIGHTS AGREEMENT. The Company and Motorola shall
have executed and delivered the Rights Agreement.
6. AFFIRMATIVE COVENANTS OF THE COMPANY. Until the earlier to occur of
(a) completion of a Qualified Public Offering, as defined in the Rights
Agreement, or (b) Motorola and its affiliates ceasing to own beneficially, at
least 7% of the outstanding Common Stock of the Company, the Company shall (or
shall cause the Subsidiary, where applicable) to:
6.1 REPORTS AND INFORMATION. Furnish to Motorola the
following reports:
(a) ANNUAL REPORTS. As soon as available and
in any event within 90 days after the end of each fiscal year, consolidated
financial statements of the Company including a balance sheet as of the end of
such fiscal year and statements of income and retained earnings and a cash flow
statement for such fiscal year, prepared in reasonable detail and in accordance
with generally accepted accounting principles consistently applied and
accompanied by the opinion thereon of a recognized firm of independent certified
public accountants as may be selected by the Board of Directors of the Company.
(b) INTERIM REPORTS. As soon as available, and
in any event within 45 days after the end of each of the first three quarters of
each of the Company's fiscal years beginning with the quarter ending September
30, 1996, consolidated financial statements of the Company including a balance
sheet as of the end of such accounting period and statements of income and
retained earnings and a cash flow statement for such accounting period and for
the period from the beginning of such fiscal year to the end of such accounting
period, and setting forth in comparative form the figures for the corresponding
periods of the preceding fiscal year, prepared in reasonable detail and in
accordance with generally accepted accounting principles (except certain
footnotes may be omitted) consistently applied and certified as correct by the
president and chief financial officer of the Company.
(c) MONTHLY REPORTS. If the Company does
monthly reports, as soon as available, and in any event within 30 days after the
end of each month consolidated and consolidating financial statements of the
Company including a cash flow statement and a balance sheet as of the end of the
month will be prepared in reasonable detail in accordance with
-14-
<PAGE>
generally acceptable accounting principles consistently applied and certified as
correct by the president and chief financial officer of the Company. The
management of the Company will include with each monthly report comments on
progress and problems facing the Company.
(d) OTHER. Promptly upon request, such other
financial information and data as Motorola may from time to time reasonably
request.
6.2 EMPLOYEE AGREEMENTS. Require that each new employee who
has access to proprietary technical information of the Company enter into the
Proprietary Information Agreement. The Company and the Subsidiary shall
diligently enforce all provisions of the Shareholders' Agreement, as amended at
Closing, all Proprietary Information Agreements, any non-competition agreements,
confidentiality agreements and all future similar agreements and shall not amend
any such agreements in any material respects or waive any material rights
thereunder without the prior written approval of the Board of Directors of the
Company, without counting the vote of any interested director. Neither the
Company nor the Subsidiary shall enter into any transactions with its directors,
officers, or key employees or with any member of their immediate families or any
firm or entity with which any such person is affiliated, without the prior
written approval of the Board of Directors of the Company or the Subsidiary, as
the case may be, without counting the vote of any interested director,
including, without limitation, increasing salaries above current levels,
increasing employee benefits, selling securities or granting options, warrants
or other rights to purchase securities of the Company or the Subsidiary.
6.3 CORPORATE EXISTENCE. Preserve and keep in full force and
effect its corporate existence, its qualification to do business and its good
standing in every state where it is or is required to be qualified to do
business, except where the failure to be so qualified would not have a Material
Adverse Effect and that nothing herein shall prevent the Company or the
Subsidiary from changing their state of incorporation.
6.4 LICENSES, PERMITS AND FRANCHISES. Maintain, preserve and
protect at all times all of its corporate and operational licenses, permits and
franchises, and comply with each and all of the terms, conditions and
requirements of such licenses, permits and franchises, except to the extent
management of the Company or the Subsidiary determines it is not in the best
interest of the Company or the Subsidiary to do so.
6.5 PROPERTIES. Preserve all of its assets and properties that
are used in the conduct of its business and maintain and keep these assets and
properties in good repair, working order and condition, and from time to time
make or cause to be made all needed and proper repairs, renewals, replacements,
betterments and improvements to these assets and properties to preserve and
maintain their value, normal wear and tear excepted, so that the business
carried on in connection with these assets and properties may be properly
conducted at all times, except to the extent management of the Company or the
Subsidiary determines it is not in their best interest to do so.
-15-
<PAGE>
6.6 INSURANCE. Maintain "all-risk" insurance at all times on
all properties (real and personal) with responsible, reputable and financially
sound insurance companies or associations satisfactory to Motorola in the full
amount of the replacement cost, and also maintain adequate (at least $1,000,000
per occurrence and $2,000,000 in the aggregate) insurance against liability to
persons for such risks and hazards and in such amounts as are usually carried by
companies engaged in similar businesses. From time to time at the reasonable
request of the Motorola, the Company shall deliver to the Motorola a detailed
schedule indicating all insurance policies then in force.
6.7 RECORDS - FINANCIAL STATEMENTS. Keep at all times complete
books of record and accounts, in conformity with generally accepted accounting
principles as revised from time to time, with full, true and correct entries of
all dealings and transactions in relation to the Company's and the Subsidiary's
business and affairs, and reasonably protect such books and accounts against
loss or damage. During the term of this Agreement, the Company shall have its
books and accounts audited yearly and, as set forth in Section 6. 1, provide
Motorola with audited and unaudited financial statements showing its financial
condition and the results of its operations during the preceding fiscal year,
together with any supporting schedules, which statements will be certified by
independent certified public accountants of recognized standing selected by the
Company.
6.8 INSPECTION. Permit Motorola, its agents and/or
representatives to visit and inspect, at reasonable times and upon prior notice,
the Company's and the Subsidiary's assets, properties, books of record and
accounts (including making copies thereof), and to discuss these items and the
results of such inspections with the Company's chief executive or chief
operating officer.
6.9 PAYMENT OF TAXES. Timely file or cause to be filed any and
all federal, state and local tax returns and reports and timely pay and
discharge any and all taxes and assessments, and any and all federal, state and
local governmental impositions, fees, charges and/or levies, including but not
limited to, any income taxes, municipal taxes, real estate and personal property
taxes, social security, unemployment, excise and withholding taxes, and the like
imposed upon the Company (including the Subsidiary), its operations, or upon its
income and profits, or upon all or any part of its properties, real. personal or
mixed. or upon its payrolls in each case before the same becomes delinquent and
before penalties accrue thereon.
6.10 OTHER INFORMATION. Furnish promptly to Motorola any
information related to this Agreement or any other agreements with Motorola or
any other documents executed in connection with this Agreement as Motorola may
reasonably request regarding the Company's operations, business affairs,
financial condition, or any of the Company's covenants, agreements and/or
undertakings under this Agreement or any of the other agreements or documents,
provided the Company is not restricted from doing so by law, rule, regulation or
contractual provisions.
-16-
<PAGE>
6.11 ENVIRONMENTAL MATTERS. The Company and the Subsidiary
shall comply in all material respects with all applicable Federal, State, and
local laws and regulations pertaining to environmental matters, and shall
promptly give written notice to Motorola of the occurrence of any event under
any such laws and regulations that would require an oral, telephonic or written
notice or communication to the U.S. Environmental Protection Agency, or any
successor agency, and shall promptly forward to Motorola copies of all orders,
notices, permits, applications or other communications and reports received,
made or given in connection with any such event, and any enforcement action
taken against the Company or the Subsidiary or against any property owned or
leased by them.
6.12 STATUTORY COMPLIANCE. At all times, conduct its business
in accordance with, and comply in all material respects with, all applicable
statutes, regulations, judgments, decrees, resolutions and orders of, and all
applicable restrictions imposed by, any and all governmental entities and/or
authorities, federal, state, local and non-U.S., judicial or administrative,
applicable to the conduct of the Company's and the Subsidiary's businesses and
activities (including environmental and other regulatory requirements) or the
ownership or operation of its properties, licenses, permits and/or franchises,
particularly those pertaining to the business they currently operate.
6.13 CONTRACTUAL COMPLIANCE. Pay and discharge all of the
Company's and the Subsidiary's indebtedness and obligations promptly and in
accordance with their terms and substantially comply with the terms and
conditions of any indentures, agreements, contracts or other instruments to
which it is party or which may affect its assets or properties or enter into
mutually satisfactory agreements with the other parties to such documents and
instruments; provided, however, that nothing herein shall prevent the Company or
the Subsidiary from withholding payment or otherwise failing to comply with any
agreement, if its management determines it to be in the best interest of the
Company to do so and if such action will not result in any adverse effect on the
Company or the Subsidiary.
6.14 FULL COMPLIANCE. Comply with each and all of the terms
of this Agreement, and all other agreements with Motorola.
6.15 CONDUCT OF BUSINESS. Carry on its business and activities
diligently and consistent with prudent business practice for a company of the
size and character of the Company (including the Subsidiary) and will use its
best efforts to preserve its present relationship with suppliers, customers and
other having business relationships with it.
6.16 PUBLICITY. Except as provided by law, secure advanced
written approval from Motorola of the decision to issue and the content of any
statement regarding or mentioning Motorola, whether in writing or otherwise to
the public or press. This provision shall not be deemed to have been breached if
the Company (1) acting on the advice of its securities or other regulatory
counsel makes disclosures to investors and potential investors or underwriters
or to any governmental or other regulatory agency or organization or (ii)
announces to its
-17-
<PAGE>
stockholders, potential investors or underwriters the existence and level of
Motorola's holdings of Securities.
6.17 DIRECTOR AND OBSERVER RIGHTS. Cause a representative of
Motorola designated by it to be a member of the Board of Directors of the
Company and permit a separate representative of Motorola to attend all meetings
of the Board of Directors and committees thereof. The Company shall give
Motorola written notice of each meeting of its board of directors and each
committee thereof at the same time and in the same manner as notice is given to
the directors (which notice shall be confirmed in writing to Motorola), provided
that in the case of telephonic meetings conducted in accordance with the
Company's bylaws and applicable law, Motorola need receive only actual notice
thereof at least 48 hours prior to any such meeting, and Motorola's
representatives shall be given the opportunity to listen to such telephonic
meetings. Motorola shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the directors. If the Company proposes to take any
action by written consent in lieu of a meeting of its board of directors or of
any committee thereof, the Company shall give written notice thereof to Motorola
prior to the effective date of such consent describing in reasonable detail the
nature and substance of such action. The Company shall pay the reasonable
out-of-pocket expenses of each director and Motorola (but not Motorola's
non-director representative) incurred in connection with attending such board
and committee meetings. Notwithstanding the introductory language in Section 6
hereof, the right of Motorola to designate an observer shall exist until
completion of a Qualified Public Offering, and the right of Motorola to
designate a director shall cease if Motorola and its affiliates cease to own
beneficially 5% or more of the outstanding Common Stock of the Company.
7. NEGATIVE COVENANTS OF THE COMPANY. Until the earlier to occur of (a)
completion of a Qualified Public Offering, as defined in the Rights Agreement or
(b) Motorola and its affiliates owning less than 7% of the outstanding Common
Stock of the Company, the Company and the Subsidiary covenant and agree that
they shall not without the affirmative vote of more than fifty percent (50%) of
the members of the Board of Directors of the Company, including the affirmative
vote of the member designated by Motorola do any of the matters or things listed
below. Any of such matters and things may also be approved by the affirmative
vote of more than fifty percent (50%) of the members of a duly authorized
committee of the Board of Directors so long as the director elected by Motorola
is a member of such committee and the director elected by Motorola votes in
favor of such approval.
7.1 PROPERTIES. Sell, lease, sublease, transfer, convey,
alienate or otherwise dispose of, in any manner, more than 25% in market value
of the Company's assets (including licenses, receivables, trademarks, trade
names, good will and other intangible assets), other than the sale of product in
the ordinary course of business, without first offering the terms of any such
transaction to Motorola.
-18-
<PAGE>
7.2 MERGER, CONSOLIDATION. Liquidate, dissolve,
reorganize, merge with or into or consolidate with any other corporation or
entity, without first offering the terms of any such transaction to Motorola.
7.3 DIRECTORS. Change the authorized number of directors
of the Company.
7.4 COMPANY PLANS. Reserve for issuance or issue shares of the
Company's capital stock or any securities of the Company convertible into the
capital stock of the Company in an aggregate amount in excess of 2,200,000 of
the outstanding shares of Common Stock of the Company and any security of the
Company convertible into the capital stock of the Company pursuant to any
Company stock bonus, pension, profit-sharing, retirement, stock purchase, stock
option or similar plan, contract or understanding with respect to Company
directors, officers, employees, or consultants.
7.5 ISSUANCE OF PREFERRED STOCK. Issue the Company's
Preferred Stock.
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The warranties, representations
and covenants of the Company and Motorola contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing for a period of three years after Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of Motorola or the Company.
8.2 TRANSFER; SUCCESSORS AND ASSIGNS. Neither this Agreement,
nor any interest herein or any rights and obligations hereunder shall be
assigned by the parties without the prior written consent of the other parties,
except that Motorola may assign its rights and obligations hereunder to any 50%
(or greater) owned subsidiary, direct or indirect, without the Company's
consent. The terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and permitted assigns of the
parties. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto or their respective successors and
assigns any rights, remedies, obligations, or liabilities under or by reason of
this Agreement, except as expressly, provided in this Agreement.
8.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Florida in the United States of America
as applied to agreements among Florida residents entered into and to be
performed entirely within Florida.
8.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
-19-
<PAGE>
8.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
8.6 NOTICES.
(a) All notices, requests, demands and other
communications under this Agreement or in connection herewith shall be given to
or made upon Motorola at 1303 E. Algonquin Road, Schaumburg, IL 60196,
Attention: New Enterprises, facsimile 847-576-7185 or, if to the Company, at
Netspeak Corporation, 902 Clint Moore Road, Suite 104, Boca Raton, FL 33487,
Attn: Chairman, facsimile 561-997-2401, with a copy to Broad and Cassel, Miami
Center, 201 South Biscayne Boulevard, Miami, FL 33131, Attn: A. Jeffry Robinson,
P.A., facsimile 305-373-9443.
(b) All notices, requests, demands and other
communications given or made in accordance with the provisions of this Agreement
shall be in writing, and shall be sent by airmail, return receipt requested,
reputable overnight courier or by facsimile with confirmation of receipt, and
shall be deemed to be given or made when receipt is so confirmed.
(c) Any party may, by written notice to the
other, alter its address or respondent, and such notice shall be considered to
have been given ten (10) days after the airmailing, facsimile or delivery
thereof.
8.7 FINDER'S FEE. Each party represents that, except as may be
set forth on Exhibit D, it neither is nor will be obligated for any finder's fee
or commission in connection with this transaction. Motorola agrees to indemnify
and to hold harmless the Company from any liability for any commission or
compensation in the nature of a finder's fee (and the costs and expenses of
defending against such liability or asserted liability) for which Motorola or
any of its officers, employees, or representatives is responsible. The Company
agrees to indemnify and hold harmless Motorola from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
8.8 EXPENSES. Each party hereto shall pay for its own fees and
expenses incurred with respect to this Agreement and the Ancillary Agreements
and the transactions contemplated herebY and thereby. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
8.9 AMENDMENTS AND WAIVERS. Any term of this Agreement
may be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the
-20-
<PAGE>
Company and Motorola. Any amendment or waiver effected in accordance with this
Section shall be binding upon each transferee of any Securities, each future
holder of all such Securities, and the Company; provided, however, that none of
the conditions set forth in Section 5 hereof may be waived with respect to
Motorola unless it consents thereto.
8.10 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
8.11 ENTIRE AGREEMENT. This Agreement, along with the
Ancillary Agreements and the certificates, exhibits and schedules and other
documents delivered pursuant hereto, and the Mutual Non-Disclosure Agreement
between the parties dated May 3, 1996, constitute the entire agreement between
the parties hereto pertaining to the sale and issuance of the Securities, and
any and all other written or oral agreements existing between the parties hereto
are expressly canceled.
IN WITNESS WHEREOF, the parties have executed this Common Stock and
Warrant Purchase Agreement as of the date first above written.
COMPANY:
NETSPEAK CORPORATION
By: /S/ STEPHEN R. COHEN
------------------------------------
Title: CHAIRMAN OF THE BOARD
----------------------------------
MOTOROLA, INC.
By: /S/ ROBERT A. BURTON
------------------------------------
Title: VICE PRESIDENT AND GENERAL MANAGER
----------------------------------
Motorola New Enterprises
INTERNET TELEPHONE COMPANY
By: /S/ STEPHEN R. COHEN
------------------------------------
Title: CHAIRMAN OF THE BOARD
----------------------------------
SIGNATURE PAGE TO COMMON STOCK AND WARRANT PURCHASE AGREEMENT
-21-
RIGHT OF NEGOTIATION AGREEMENT
This Right of Negotiation Agreement dated August 28, 1996 is entered
into between NetSpeak Corporation, a Florida corporation (the "Company"), and
Motorola, Inc., a Delaware corporation ("Motorola").
The Company and Motorola are entering into a Common Stock and Warrant
Purchase Agreement dated the date hereof (the "Purchase Agreement") which
requires the execution and delivery of this Agreement.
Therefore, in consideration of Motorola's execution and delivery of,
and performance of its obligations under, the Purchase Agreement, and the mutual
promises, covenants and agreements contained herein, the Company and Motorola
agree as follows:
1. The Company agrees to not grant (1) any non-exclusive license of any
of its proprietary rights without notifying Motorola of the existence of such a
non-exclusive license and offering to Motorola a non-exclusive license on the
same or better terms and (2) any exclusive license of any of its proprietary
rights without first giving Motorola at least 30 days notice of the Company's
intention to do so. Proprietary rights of the Company shall include patents,
trademarks, trade names, trade dress, mask works, copyrights, applications and
registrations for the foregoing, computer software, data and documentation,
trade secrets (including ideas, formulas, know-how, inventions (whether or not
patentable or reduced to practice), manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists) and all other intellectual
property rights and copies and tangible embodiments of all of the foregoing.
2. The Company hereby grants to Motorola a separate and additional
right of first negotiation, pursuant to which the Company will not grant to any
party other than Motorola a license for the Company's public switched telephone
network gateway products, for the specific field of use of cable modem
infrastructure and cellular infrastructure, without first negotiating with
Motorola for an exclusive, worldwide license for such field of use, with such
license to bear royalties payable by Motorola at rates reflecting most favored
customer pricing.
3. The Company hereby grants to Motorola a separate and additional
right of first negotiation, pursuant to which the Company will not grant to any
party other than Motorola a license for the field of use of embedding of the
Company's client technology in wireless devices, without first negotiating with
Motorola for an exclusive, royalty-bearing, worldwide, perpetual license for
such field of use, with such license bearing royalties payable by Motorola at
rates reflecting most favored customer pricing.
4. The Company's obligations under paragraph 1 above shall expire at
such time as Motorola and its affiliates own less than 5% of the Company's
outstanding Common Stock. The
<PAGE>
Company's obligations under paragraphs 2 and 3 above shall expire on August 28,
1997, unless arbitration proceedings under paragraph 5 below are then pending.
5. The parties agree to negotiate in good faith towards reaching
mutually satisfactory terms of license agreements under paragraphs 1, 2 and 3
above within 60 days after the commencement of negotiations. Should the parties
reach impasse on any issue in such negotiations, or be unable to reach agreement
within 60 days of the commencement of negotiations, the parties agree to submit
their differences to resolution by binding arbitration before a single
arbitrator in the City of Chicago, under the Commercial Arbitration Rules of the
American Arbitration Association, the award under which shall be final and
binding and may be entered in any court having jurisdiction. While the
arbitrator should strive to effect a license agreement fair to both parties, his
or her decision need not necessarily be that a license agreement must be entered
into if he or she determines that the parties negotiated in good faith.
6. This Agreement represents the entire agreement of the parties with
respect to the rights granted herein. The provisions of Section 8.2, 8.3, 8.4,
8.6, 8.9 (first sentence), 8.10 and 8.11 of the Purchase Agreement are hereby
incorporated by reference herein and made a part hereof, MUTATIS MUTANDIS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date written above.
MOTOROLA, INC. NETSPEAK CORPORATION
By: /S/ ROBERT A. BURTON By:/S/ STEPHEN R. COHEN
------------------------------------ --------------------------
Title: VICE PRESIDENT AND GENERAL MANAGER Title:CHAIRMAN OF THE BOARD
----------------------------------
Motorola New Enterprises
-2-
EXHIBIT 10.12
NETSPEAK CORPORATION
COMMON STOCK AND WARRANT
PURCHASE AGREEMENT
JUNE 10, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<C> <C>
1. PURCHASE AND SALE OF COMMON STOCK AND WARRANT...........................................1
1.1 Sale and Issuance of Common Stock and Warrant..................................1
1.2 Closing........................................................................1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................1
2.1 Organization, Good Standing and Qualification..................................1
2.2 Capitalization.................................................................2
2.3 Subsidiaries...................................................................2
2.4 Authorization..................................................................2
2.5 Valid Issuance of Securities...................................................3
2.6 Governmental Consents..........................................................3
2.7 Litigation.....................................................................3
2.8 Employee Agreement.............................................................3
2.9 Patents and Trademarks.........................................................4
2.10 Compliance with Other Instruments..............................................4
2.11 Agreements; Action.............................................................5
2.12 Disclosure.....................................................................5
2.13 Rights of Registration.........................................................6
2.14 Title to Property and Assets...................................................6
2.15 Financial Statements...........................................................6
2.16 Employee Benefit Plans.........................................................6
2.17 Tax Returns and Payments.......................................................6
2.18 Insurance......................................................................7
2.19 Labor Agreements and Actions...................................................7
2.20 Changes........................................................................7
2.21 Employees......................................................................8
2.22 No Conflict of Interest........................................................8
3. REPRESENTATIONS AND WARRANTIES OF CREATIVE..............................................9
3.1 Authorization..................................................................9
3.2 Purchase Entirely for Own Account..............................................9
3.3 Disclosure of Information......................................................9
3.4 Investment Experience..........................................................9
3.5 Restricted Securities.........................................................10
3.6 Further Limitations on Disposition............................................10
3.7 Legends.......................................................................10
3.8 Accredited Investor...........................................................11
-i-
<PAGE>
4. CONDITIONS OF CREATIVE'S OBLIGATIONS AT CLOSING........................................11
4.1 Representations and Warranties................................................11
4.2 Performance...................................................................11
4.3 Compliance Certificate........................................................11
4.4 Proceedings and Documents.....................................................11
4.5 Opinion of Company Counsel....................................................11
4.6 Rights Agreement..............................................................11
4.7 Proprietary Information and Assignment of Inventions Agreement................11
4.8 Opinion of Patent Counsel.....................................................11
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.....................................12
5.1 Representations and Warranties................................................12
5.2 Rights Agreement..............................................................12
5.3 Compliance Certificate........................................................12
6. MISCELLANEOUS..........................................................................12
6.1 Survival of Warranties........................................................12
6.2 Transfer; Successors and Assigns..............................................12
6.3 Governing Law.................................................................12
6.4 Counterparts..................................................................12
6.5 Titles and Subtitles..........................................................12
6.6 Notices.......................................................................13
6.7 Finder's Fee..................................................................13
6.8 Expenses......................................................................13
6.9 Amendments and Waivers........................................................13
6.10 Severability..................................................................14
6.11 Entire Agreement..............................................................14
6.12 Confidentiality...............................................................14
</TABLE>
-ii-
<PAGE>
COMMON STOCK AND WARRANT PURCHASE AGREEMENT
THIS COMMON STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is
made as of June 10, 1996 by and among Netspeak Corporation, a Florida
corporation (the "Company"), Internet Telephone Company, a Florida corporation
and a wholly-owned subsidiary of the Company (the "Subsidiary") and Creative
Technology Ltd., a Singapore corporation ("Creative").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF COMMON STOCK AND WARRANT.
1.1 SALE AND ISSUANCE OF COMMON STOCK AND WARRANT. Subject to
the terms and conditions of this Agreement, Creative agrees to purchase at the
Closing (as defined below) and the Company agrees to sell and issue to Creative
at the Closing an aggregate of 207,679 shares of the Company's Common Stock (the
"Stock") at a purchase price of $5.05 per share, for an aggregate purchase price
of $1,048,778.95 (the "Purchase Price"). The shares of Common Stock issued to
Creative pursuant to this Agreement shall be hereinafter referred to as the
"Stock." In addition, at the Closing, the Company agrees to issue to Creative a
warrant (the "Warrant"), the form of which is attached hereto as EXHIBIT A, to
purchase up to an aggregate of 207,679 additional shares of the Company's Common
Stock (the "Warrant Shares") at an exercise price of $5.05 per share. The Stock,
the Warrant and the shares of Common Stock issuable upon exercise of the Warrant
are collectively referred to herein as the "Securities."
1.2 CLOSING. The purchase and sale of the Stock shall take
place at the offices of Venture Law Group, at 2800 Sand Hill Road, Menlo Park,
California on June 20, 1996, or at such other time and place as the Company and
Creative mutually agree upon, orally or in writing (which time and place are
designated as the "Closing"). At the Closing, the Company shall deliver to
Creative a certificate representing the Stock being purchased thereby and the
Warrant against payment of the Purchase Price therefor, by check payable to the
Company or wire transfer to the Company's bank account. In addition, the Company
and Creative shall enter into the Investor Rights Agreement (the "Rights
Agreement"), the form of which is attached hereto as EXHIBIT B.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company and the
Subsidiary each hereby jointly and severally represents and warrants to Creative
that, except as set forth on a Schedule of Exceptions attached hereto as EXHIBIT
C, specifically identifying the relevant section hereof, which exceptions shall
be deemed to be representations and warranties as if made hereunder:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each
of the Company and the Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and has all
requisite corporate power and authority to carry on its business as now
conducted and as proposed to be conducted. Each of the Company and the
<PAGE>
Subsidiary is duly qualified to transact business and is in good standing in
each jurisdiction in which the failure so to qualify would have a material
adverse effect on the business, prospects, condition (financial or otherwise),
affairs, operations, properties or assets of the Company and the Subsidiary,
taken as a whole (a "Material Adverse Effect"). The Company has furnished
Creative with copies of its and the Subsidiary's Articles of Incorporation (the
"Articles") and Bylaws, as amended. Said copies are true, correct and complete
and contain all amendments through the Closing Date.
2.2 CAPITALIZATION. The authorized capital of the
Company consists, or will consist, immediately following the Closing, of:
(i) COMMON STOCK. 25,000,000 shares of Common
Stock, 6,928,679 shares of which will be issued and outstanding immediately
Following the Closing (giving effect to the transactions contemplated hereunder)
to the persons listed on the Schedule of Shareholders attached hereto as EXHIBIT
D. The outstanding shares of Common Stock are all duly and validly authorized
and issued and were issued in accordance with the registration or qualification
requirements of the Securities Act of 1933, as amended (the "Securities Act")
and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(ii) PREFERRED STOCK. 1,000,000 shares of
Preferred Stock, none of which will be issued and outstanding.
(iii) There are no outstanding options, warrants,
rights (including conversion or preemptive rights) or agreements, orally or in
writing, for the purchase or acquisition from the Company of any shares of its
capital stock. The Company has reserved 2,200,000 shares of Common Stock for
issuance, at the discretion of the Board of Directors, to officers, directors,
employees and consultants pursuant to stock option plans adopted by the Company.
2.3 SUBSIDIARIES. The Company does not currently own or
control, directly or indirectly, any interest in any other corporation,
association, or other business entity other than the Subsidiary. The authorized
capital stock of the Subsidiary consists of 1,000 Shares of Common Stock, 100
shares of which are issued and outstanding, all of which are held by the
Company.
2.4 AUTHORIZATION. All corporate action on the part of the
Company and the Subsidiary, their respective officers, directors and
shareholders necessary for the authorization, execution and delivery of this
Agreement and the Rights Agreement, the performance of all obligations of each
of the Company and the Subsidiary hereunder and thereunder and the
authorization, issuance and delivery of the Securities has been taken or will be
taken prior to the Closing, and this Agreement and the Rights Agreement
constitute valid and legally binding obligations of each of the Company and the
Subsidiary, enforceable against the Company in accordance with their terms,
subject to applicable bankruptcy, moratorium and other laws
-2-
<PAGE>
affecting creditors rights generally and to the application by a court of
general principles of equity.
2.5 VALID ISSUANCE OF SECURITIES. The Stock being issued to
Creative hereunder, when issued, sold and delivered in accordance with the terms
hereof for the consideration expressed herein, will be duly and validly issued,
fully paid and nonassessable. The Warrant being issued to Creative hereunder,
when issued, sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued. Based in part
upon the representations of Creative in this Agreement and subject to the
provisions of Section 2.6 below, the Securities will be issued in compliance
with all applicable federal and state securities laws. The Warrant Shares
issuable upon exercise of the Warrant have been duly and validly reserved for
issuance and, when issued and delivered in accordance with the terms of the
Warrants, shall be duly and validly issued, fully paid and non-assessable. The
offer, sale and issuance of the Stock, the Warrant and the Warrant Shares
constitute transactions exempt from the registration requirements of Section 5
of the Securities Act by virtue of Section 4(2) thereof and will be issued in
compliance with all applicable state securities laws.
2.6 GOVERNMENTAL CONSENTS. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company or the Subsidiary is required in connection
with the valid execution and delivery of this Agreement and the Rights
Agreement, or the offer, sale or issuance of the Stock and the Warrant (and the
Warrant Shares issuable upon exercise of the Warrant), or the consummation of
any other transaction contemplated hereby and by the Rights Agreement.
2.7 LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the best of the Company's knowledge and the
Subsidiary's knowledge, currently threatened against the Company or the
Subsidiary that questions the validity of this Agreement or the Rights Agreement
or the right of the Company or Subsidiary to enter into the@ or to consummate
the transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any Material Adverse Effect, or any change
in the current equity ownership of the Company or the Subsidiary, nor is the
Company or the Subsidiary aware that there is any basis for the foregoing. The
foregoing includes, without Stations actions pending or threatened (or any basis
therefor known to the Company or the Subsidiary) involving the prior employment
of any of the Company's or the Subsidiary's employees, their use in connection
with the Company's or the Subsidiary's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. Neither the Company nor the
Subsidiary is a party or subject to the provisions of any writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit, proceeding or investigation by the Company or the Subsidiary
currently pending or which the Company intends to initiate.
2.8 EMPLOYEE AGREEMENT. Each key employee and officer
of the Company and the Subsidiary has executed or prior to the Closing will
execute an agreement with the
-3-
<PAGE>
Company regarding confidentiality and proprietary information. Each of the
Company and the Subsidiary, after reasonable investigation, is not aware that
any of its employees are in violation thereof, and each of the Company and the
Subsidiary will use its best efforts to prevent any such violation.
2.9 PATENTS AND TRADEMARKS. Exhibit C sets forth all patents,
trademarks, service marks, trade names, copyrights, trade secrets, information,
proprietary rights and processes owned by or licensed to the Company or the
Subsidiary (collectively the "Company Intellectual Property"). The Company
Intellectual Property is sufficient for each of the Company and the Subsidiary
to conduct its business as now conducted and as proposed to be conducted without
any conflict with or infringement of the rights of others. There are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor is the Company or the Subsidiary bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary fights and processes of any other person or entity.
Neither the Company nor the Subsidiary has received any written communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary fights of any other
person or entity. Neither the Company nor the Subsidiary is aware that any of
its respective employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere in any material respect with the use of his or her best efforts to
promote the interests of the Company or the Subsidiary or that would conflict
with the Company's or the Subsidiary's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement and the Rights Agreement,
nor the carrying on of the Company's or the Subsidiary's business by their
respective -employees, nor the conduct of the Company's or the Subsidiary's
business as proposed, will, to the best knowledge of each of the Company and the
Subsidiary, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees is now obligated. Neither the
Company nor the Subsidiary believes it is or will be necessary to utilize any
inventions of any of its respective employees (or persons it currently intends
to hire) made prior to their employment by the Company or the Subsidiary, as
applicable, except where the Company has acquired the rights to ' he foregoing.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) Neither the Company nor the Subsidiary is
in violation or default of (i) any provisions of its Articles or Bylaws or (ii)
of any instrument, judgment, order, writ, decree or contract to which it is a
party or by which it is bound or, (iii) to the best of its knowledge, of any
provision of federal or state statute, rule or regulation applicable to it,
which violation or default, in the case of (ii) and (iii), would have a Material
Adverse Effect. The execution, delivery and performance of this Agreement and
the Rights Agreement and the consummation of the transactions contemplated
hereby and thereby will not result in any such violation or be in conflict with
or constitute, with or without the passage of time and giving of
-4-
<PAGE>
notice, either a default under any such provision, instrument, judgment, order,
writ, decree or contract or an event which results in a Material Adverse Effect.
(b) Each of the Company and the Subsidiary has
avoided every condition, and has not performed any act, the occurrence of which
would result in its loss of any fight granted under any license, distribution or
other agreement, which loss would have a Material Adverse Effect.
2.11 AGREEMENTS; ACTION.
(a) There are no agreements, understandings or
proposed transactions between the Company or the Subsidiary and any of its
respective officers or directors or their respective spouses, affiliates, or any
affiliate thereof.
(b) Except for agreements explicitly
contemplated hereby, there are no agreements, understandings, instruments,
contracts or proposed transactions to which the Company or the Subsidiary is a
party or by which it is bound that involve (i) obligations of, or payments to it
In excess of, $10,000, or (ii) the license of any patent, copyright, trade
secret or other proprietary right to or from it.
(c) Neither the Company nor the Subsidiary has
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $50,000, (iii) made any loans or advances to any person, other than
ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) Neither the Company nor the Subsidiary is a
party to and is not bound by any contract, agreement or instrument, or subject
to any restriction under its Articles or Bylaws, that has a Material Adverse
Effect.
(e) Other than discussions that the Company or
the Subsidiary is contractually bound from disclosing to any third party,
neither the Company nor the Subsidiary has engaged in the past three (3) months
in any discussion (i) with any representative of any corporation or corporations
regarding the merger of it with or into any such corporation or corporations,
(ii) with any corporation, partnership, association or other business entity or
any individual regarding the sale, conveyance or disposition of all or
substantially all of its assets or a transaction or series of related
transactions in which more than fifty percent (50%) of its voting power is
disposed of, or (iii) regarding any other form of liquidation, dissolution or
winding up of it.
2.12 DISCLOSURE. Each of the Company and the Subsidiary
has fully provided Creative with all the information which Creative has
requested in connection with the purchase
-5-
<PAGE>
of the Securities hereunder. No representation or warranty of the Company or
Subsidiary contained in this Agreement and the Exhibits attached hereto, any
certificate furnished or to be furnished to Creative at the Closing contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made.
2.13 RIGHTS OF REGISTRATION. Except as contemplated herein,
the Company has not granted or agreed to grant any registration rights,
including piggyback rights, to any person or entity.
2.14 TITLE TO PROPERTY AND ASSETS. Each of the Company and the
Subsidiary owns its property and assets free and clear of all mortgages, hens,
loans and encumbrances, except such encumbrances and liens which arise in the
ordinary course of business and do not materially impair its ownership or use of
such property or assets. With respect to the property and assets it leases, each
of the Company and the Subsidiary is in compliance with such leases in all
material respects and, to the best of its knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances, except such encumbrances and
liens which do not materially impact its use of the leased property.
2.15 FINANCIAL STATEMENTS. The Company has delivered to
Creative its consolidated financial statements at December 31, 1995 and for the
fiscal year then ended (which have been audited by the Company's independent
accountants) and its unaudited consolidated financial statements (balance sheet
and profit and loss statement) at March 31, 1996 and for the three months then
ended (collectively, the "Financial Statements"). The Financial Statements have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated and with each
other, except that the Financial Statements do not contain all footnotes
required by generally accepted accounting principles. The Financial Statements
fairly present the financial condition and operating results of the Company and
the Subsidiary, taken as a whole, as of the dates, and for the periods,
indicated therein, subject to normal year-end audit adjustments, which are
neither individually nor in the aggregate material. Except as set forth in the
Financial Statements, neither the Company nor the Subsidiary has any material
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to March 31, 1996, and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
the Financial Statements, which, in both cases, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company and the Subsidiary, taken as a whole.
2.16 EMPLOYEE BENEFIT PLANS. Neither the Company nor the
Subsidiary has Employee Benefit Plan as defined in the Employee Retirement
Income Security Act of 1974.
2.17 TAX RETURNS AND PAYMENTS. Each of the Company and
Subsidiary has filed all tax returns and reports as required by law. These
returns and reports are true and correct
-6-
<PAGE>
in all material respects. Each of the Company and the Subsidiary has paid all
taxes and other assessments due, except those contested by it in good faith.
2.18 INSURANCE. Each of the Company and the Subsidiary has in
full force and effect fire and casualty insurance policies, with extended
coverage, sufficient in amount (subject to reasonable deductibles) to allow it
to replace any of its properties that might be damaged or destroyed.
2.19 LABOR AGREEMENTS AND ACTIONS. Neither the Company nor the
Subsidiary is bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the knowledge of the Company or the Subsidiary, has sought to represent
any of the employees, representatives or agents of the Company or the
Subsidiary. There is no strike or other labor dispute involving the Company or
the Subsidiary pending, or to the best knowledge of the Company and the
Subsidiary threatened, which could have a Material Adverse Effect nor is the
Company or the Subsidiary aware of any labor organization activity involving its
employees. Neither the Company nor the Subsidiary is aware that any officer or
key employee, or that any group of key employees, intends to terminate their
employment with the Company or the Subsidiary, nor does the Company or the
Subsidiary have a present intention to terminate the employment of any of the
foregoing. The employment of each officer and employee of the Company or the
Subsidiary is terminable at the will of the Company or the Subsidiary.
2.20 CHANGES. Since March 31, 1996 there has not been:
(a) any change in the consolidated assets,
liabilities, condition (financial or otherwise), affairs, earnings, business,
operations or prospects of the Company or the Subsidiary from that reflected in
the consolidated balance sheet as at March 31, 1996 referred to in Section 2.16
above, except changes in the ordinary course of business which have not been,
either in any case or in the aggregate, materially adverse,
(b) any change, except in the ordinary course
of business, in the contingent obligations of the Company or the Subsidiary by
way of guaranty or any assurance of performance or payment, endorsement,
indemnity, warranty or otherwise;
(c) any damage, destruction or loss, whether or
not covered by insurance, materially adversely affecting the properties or
business of the Company and the Subsidiary, taken as a whole;
(d) any waiver by the Company or the Subsidiary
of a valuable right or of a material debt owed to it;
-7-
<PAGE>
(e) any loans made by the Company or the
Subsidiary to its employees, officers or directors other than advances of
expenses made in the ordinary course of business or in connection with employee
stock purchases,
(f) any declaration or payment of any dividend
or other distribution of the assets of the Company or the Subsidiary or any
direct or indirect redemption, purchase or acquisition of any of the Company's
or the Subsidiary's securities other than repurchases of Common Stock from
terminated employees, consultants, officers and directors pursuant to written
agreements;
(g) any labor organization activity or labor
trouble;
(h) to the best knowledge of the Company and
the Subsidiary, any other event or condition of any character which has had or
may result in a Material Adverse Effect;
(i) any material increases in the compensation
of any of the Company's or the Subsidiary's employees, officers or directors;
(j) any resignation or termination of employment
of any officer or key employee of the Company or the Subsidiary; or
(k) any agreement entered into by the Company
or the Subsidiary to do any of the foregoing matters covered by subsections 2.21
(a) through (j).
2.21 EMPLOYEES. To the best knowledge of the Company and the
Subsidiary, after reasonable investigation, no employee or consultant of the
Company or the Subsidiary is in violation of any term of any employment,
employment contract or any other contract or agreement relating to the
relationship of any such person with the Company or the Subsidiary or any other
party because of the nature of the business conducted or to be conducted by the
Company or the Subsidiary. Neither the Company nor the Subsidiary is aware of
any key employee of the Company or the Subsidiary who has any plans to terminate
his or her employment with the Company. To the best knowledge of the Company and
the Subsidiary, each of the Company and the Subsidiary has complied with all
applicable state and federal equal employment opportunity and other laws
relating to employment. Neither the Company nor the Subsidiary has any
agreements or arrangements with persons titled as independent contractors or
consultants, as a result of which, by virtue of the control exercised by the
Company, the type of work performed by the persons or any other circumstances,
said persons could reasonably be deemed to be employees of the Company.
2.22 NO CONFLICT OF INTEREST. To the best of the knowledge of
the Company and the Subsidiary, none of the Company's or the Subsidiary's
officers or directors, or any members of their immediate families have any
direct or indirect ownership interest in any firm or corporation with which it
is affiliated or with which it has a business relationship, or any firm
-8-
<PAGE>
or corporation which competes with it except that such officers, directors
and/or shareholders may own stock in publicly traded companies which may compete
with the Company or the Subsidiary. Neither the Company nor the Subsidiary is a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3. REPRESENTATIONS AND WARRANTIES OF CREATIVE. Creative
represents and warrants to the Company and the Subsidiary that:
3.1 AUTHORIZATION. All corporate action on the part of
Creative, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Rights
Agreement, the performance of all obligations of Creative hereunder has been
taken or will be taken prior to the Closing, and this Agreement and the Rights
Agreement constitute valid and legally binding obligations of Creative,
enforceable against Creative in accordance with their terms, subject to
applicable bankruptcy, moratorium and other laws affecting creditors rights
generally and to the application by a court of general principles of equity.
3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement and the
Rights Agreement are made with Creative in reliance upon Creative's
representation to the Company, which by Creative's execution of this Agreement
Creative hereby confirms, that the Securities to be acquired by Creative will be
acquired for investment for Creative's own account, not as a nominee or agent,
and not with a view to the resale or distribution of any part thereof, and that
Creative has no present intention of selling, granting any participation in, or
otherwise distributing the Securities. By executing this Agreement, Creative
further represents that Creative does not presently have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities. Creative represents that it has full power and authority to enter
into this Agreement and the Rights Agreement.
3.3 DISCLOSURE OF INFORMATION. Creative believes it has
received all the information it considers necessary or appropriate for deciding
whether to acquire the Securities. Creative further represents that it has had
an opportunity to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Securities. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the fight of Creative to rely thereon.
3.4 INVESTMENT EXPERIENCE. Creative is acquiring the
Securities for investment for Creative's own account, not as a nominee or agent,
and not with the view to, or for resale in connection with, any distribution
thereof, and that Creative has no present intention of selling, granting any
participation in , or otherwise distributing the Securities, other than
transfers to affiliates. Creative understands that the Securities have not been,
and will not be, registered under the Securities Act, by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the
-9-
<PAGE>
investment intent and the accuracy of Creative's representations as expressed
herein. Creative has not been formed for the specific purpose of acquiring the
Securities.
3.5 RESTRICTED SECURITIES. Creative understands that the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such Securities may be resold without registration under
the Securities Act only in certain limited circumstances. In this connection,
Creative represents that it is familiar with Rule 144 promulgated under the
Securities Act ("Rule 144"), as presently in effect, and understands the resale
limitations imposed thereby and by the Securities Act.
3.6 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Creative agrees that it shall not
dispose all or any of the Securities to any competitor of the Company without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Creative further agrees not to make any disposition of
all or any portion of the Securities unless and until:
(a) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such Registration Statement; or
(b) (i) Creative shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (ii) if reasonably requested by the Company, Creative shall have furnished
the Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration under the Securities Act. It
is agreed that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144.
(c) Notwithstanding the provisions of paragraphs
(a) and (b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by Creative to a subsidiary or parent corporation of
Creative, if the transferee or transferees agree in writing to be subject to the
terms hereof to the same extent as Creative hereunder.
3.7 LEGENDS. It is understood that the Securities, and
any securities issued in respect thereof or exchange therefor, may bear one or
all of the following legends:
(a) "THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT TN EFFECT
WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS
SOLD PURSUANT TO RULE 144 OF SUCH ACT."
-10-
<PAGE>
(b) Any legend required by the Blue Sky laws of
any state to the extent such laws are applicable to the securities represented
by the certificate so legended.
3.8 ACCREDITED INVESTOR. Creative is an accredited
investor as defined in Rule 50 1 (a) of Regulation D promulgated by the SEC
under the Securities Act.
4. CONDITIONS OF CREATIVE'S OBLIGATIONS AT CLOSING. The
obligations of Creative to the Company under this Agreement and the Rights
Agreement are subject to the fulfillment, on or before the Closing, of each of
the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of such
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
4.2 PERFORMANCE. The Company shall have performed and complied
with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it on or before the Closing.
4.3 COMPLIANCE CERTIFICATE. The President of the Company
shall deliver to Creative at the Closing a certificate certifying that the
conditions specified in Sections 4.1 and 4.2 have been fulfilled.
4.4 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated hereby and by the
Rights Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to Creative, and Creative shall have received
all such counterpart original and certified or other copies of such documents as
Creative may reasonably request.
4.5 OPINION OF COMPANY COUNSEL. Creative shall have received
from Broad and Cassel, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of EXHIBIT E.
4.6 RIGHTS AGREEMENT. The Company and Creative shall have
executed and delivered the Rights Agreement.
4.7 PROPRIETARY INFORMATION AND ASSIGNMENT OF INVENTIONS
AGREEMENT. The Company and each officer, director and key employee of the
Company shall have entered into a proprietary information and assignment of
inventions agreement in form and substance satisfactory to Creative.
4.8 OPINION OF PATENT COUNSEL. The Company shall have
obtained a legal opinion, dated as of the Closing, as to the Company's
non-infringement of U.S. Patent No. 4,124,773 in form and substance reasonably
satisfactory to Creative.
-11-
<PAGE>
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
obligations of the Company to Creative under this Agreement and the Rights
Agreement are subject to the fulfillment, on or before the Closing, of each of
the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Creative contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the Closing.
5.2 RIGHTS AGREEMENT. The Company and Creative shall have
executed and delivered the Rights Agreement.
5.3 COMPLIANCE CERTIFICATE. An authorized officer of
Creative shall deliver to the Company a certificate certifying that the
conditions specified in Section 5.1 have been fulfilled.
6. MISCELLANEOUS.
6.1 SURVIVAL OF WARRANTIES. The warranties, representations
and covenants of the Company and Creative contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing for a period of one (1) year and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of Creative or
the Company.
6.2 TRANSFER; SUCCESSORS AND ASSIGNS. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
6.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Florida in the United States of America
as applied to agreements among Florida residents entered into and to be
performed entirely within Florida.
6.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
-12-
<PAGE>
6.6 NOTICES.
(a) All notices, requests, demands and other
communications under this Agreement or in connection herewith shall be given to
or made upon Creative at 67 Ayer Rajah Crescent No. 03-18. Republic of Singapore
139950, Attn: Ng Keh Long and Creative Labs, Inc., 1901 McCarthy Boulevard,
Milpitas, CA 95035, Attn: General Counsel, or, if to the Company, at Netspeak
Corporation, 902 Clint Moore Road, Suite 104, Boca Raton, FL 33497, Attn:
Chairman, with a copy to Broad and Cassel, Miami Center, 201 South Biscayne
Boulevard, FL 33131.
(b) All notices, requests, demands and other
communications given or made in accordance with the provisions of this Agreement
shall be in writing, and shall be sent by airmail, return receipt requested,
reputable overnight courier or by telex or telecopy (facsimile) with
confirmation of receipt, and shall be deemed to be given or made when receipt is
so confirmed.
(c) Any party may, by written notice to the
other, alter its address or respondent, and such notice shall be considered to
have been given ten (10) days after the airmailing, telexing, telecopying or
delivery thereof.
6.7 FINDER'S FEE. Each party represents that, except as set
forth on the Schedule of Exceptions, it neither is nor will be obligated for any
finder's fee or commission in connection with this transaction. Creative agrees
to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finder's fee (and the costs and
expenses of defending against such liability or asserted liability) for which
Creative or any of its officers, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless Creative from any liability
for any commission or compensation in the nature of a finder's fee (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company or any of its officers, employees or representatives is
responsible.
6.8 EXPENSES. Each party hereto shall pay for its own fees and
expenses incurred with respect to this Agreement and the Rights Agreement and
the transactions contemplated hereby and thereby. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
6.9 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively,
only with the written consent of the Company and Creative. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
transferee of any Securities, each future holder of all such Securities, and
-13-
<PAGE>
the Company; provided, however, that none, of the conditions set forth in
Section 5 hereof may be waived with respect to Creative unless it consents
thereto.
6.10 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
6.11 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the sale and issuance of the
Securities, and any and all other written or oral agreements existing between
the parties hereto are expressly canceled.
6.12 CONFIDENTIALITY. Neither party shall announce the
execution of this Agreement, the Rights Agreement, the Technology License and
Distribution Agreement dated of even date herewith between the Company and
Creative, or the consummation of the transactions contemplated hereby or thereby
to the general public through a press release or other means without the consent
of the other party, which consent shall not be unreasonably withheld; provided,
however, that the Company shall not disclose the terms of this Agreement, the
Rights Agreement or the Technology License and Distribution Agreement to any
third party unless such third party first executes a nondisclosure agreement
with respect to such terms; provided, further, that the Company may disclose the
existence, and only the existence, of such agreement and its relationship with
Creative to the Company's shareholders without first obtaining a nondisclosure
agreement from such shareholders. Each party's obligation under this Section
6.12 shall survive the execution and delivery of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Common Stock and
Warrant Purchase Agreement as of the date first above written.
COMPANY:
NETSPEAK CORPORATION
By:/S/ STEPHEN R. COHEN
---------------------------
Title:CHAIRMAN AND CEO
------------------------
CREATIVE TECHNOLOGY LTD.
By:/S/ SIM WONG HOO
--------------------------
Title: CHAIRMAN AND CEO
----------------------
[SIGNATURES CONTINUED]
-14-
<PAGE>
INTERNET TELEPHONE COMPANY
By:/S/ STEPHEN R. COHEN
--------------------------
Title:CHAIRMAN AND CEO
-----------------------
-15-
EXHIBIT 10.13
TECHNOLOGY LICENSE AND DEVELOPMENT AGREEMENT
This TECHNOLOGY LICENSE AND DEVELOPMENT AGREEMENT is made and
effective as of the later of the two signature dates set forth below ("EFFECTIVE
DATE") by and between CREATIVE TECHNOLOGY LTD., a Singapore corporation
("CREATIVE"), having a principal place of business at 67 Ayer Rajah Crescent
#03-18, Republic of Singapore 139950, and NETSPEAK, CORPORATION, a Florida
corporation ("LICENSOR"), having a principal place of business at 902 Clint
Moore Road, Boca Raton, Florida 33407.
This Agreement consists of the attached Basic Terms and Conditions,
including the Exhibits attached thereto (collectively, the "AGREEMENT").
For purposes of this Agreement, all reference to "Creative" shall
include a reference to Creative Affiliate, and all reference to "Licensor" shall
include a reference to Licensor Affiliate.
Each of the undersigned represents and warrants that he or she is duly
authorized to sign this Agreement on behalf of the party he or she represents.
Each party has read, understands and agrees to the terms and conditions of this
Agreement.
CREATIVE: LICENSOR:
CREATIVE TECHNOLOGY LTD. NETSPEAK CORPORATION
By:/S/ SIM WONG HOO By:/S/ ROBERT KENNEDY
---------------- ------------------
Sim Wong Hoo Robert Kennedy
Name: Sim Wong Hoo Name: Robert Kennedy
Title: Chairman & CEO Title: President
Address: Address:
67 Ayer Rajah Crescent #03-18 902 Clint Moore Road
Republic of Singapore 139950 Boca Raton, FL 33407
Attention: John Danforth Attention:___________________
Phone: 408/428-2380 Phone: 407/997-4001
Fax: 408/428-6699 Fax: 407/997-2401
Date: Date:
------------------------ ------------------------
CONFIDENTIAL
<PAGE>
BASIC TERMS AND CONDITIONS
TO
TECHNOLOGY LICENSE AND DEVELOPMENT AGREEMENT
All capitalized terms contained herein shall have the meaning set forth
in Exhibit A, attached hereto, unless otherwise defined in the main text of this
Agreement.
1. GRANT OF RIGHTS.
1.1(a) EXCLUSIVE ACTIVATED PRODUCT LICENSE GRANT. For the duration of
the Activated Product Term in this Agreement, and subject to the terms and
conditions of this Agreement, Licensor hereby grants to Creative a
non-transferable, exclusive, world-wide right and license (with a right to
sublicense pursuant to Section 8.0 hereto) to:
(i) use, reproduce, have reproduced, manufacture, have
manufactured, modify or have modified solely pursuant to Section 14.0,
market, have marketed, sell, have sold, import, export, distribute
and/or have distributed the Activated Product; and
(ii) create Derivative Works (as mutually agreed), and
Localized Products from the Activated Products.
1.1(b) EXCLUSIVE RESTRICTED PRODUCT LICENSE GRANT. For the duration of
the Restricted Product Term in this Agreement, and subject to the terms and
conditions of this Agreement, Licensor hereby grants to Creative a
non-transferable, exclusive world-wide right and license (with the right to
sublicense pursuant to Section 8.0 hereto) to:
(i) use, reproduce, have reproduced, manufacture, have
manufactured, modify or have modified solely pursuant to Section 14.0,
market, have marketed, sell, have sold, import, export, distribute
and/or have distributed the Restricted Product; and
(ii) create Derivative Works (as mutually agreed), and
Localized Products from the Restricted Product.
1.2 NON-EXCLUSIVE DOCUMENTATION LICENSE GRANT. For the duration of the
Term of this Agreement, and subject to the terms and conditions of this
Agreement, Licensor hereby grants to Creative a nontransferable, non-exclusive,
world-wide right and license under Licensor's Intellectual Property Rights in
and to the Documentation, to use, reproduce, have reproduced, manufacture, have
manufactured, modify, market, have marketed, translate, have translated or
otherwise localized, sell, have sold, import, export, distribute and/or have
distributed the Documentation, including the right to include any Documentation
on any CD-ROM or diskette, in electronic form, in place of hard copy of the
same.
1.3 BUNDLE RIGHTS AND OBLIGATIONS. Licensor hereby grants to Creative
the right to combine the Licensed Products with other software programs on a
single CD-ROM or series of diskettes. Creative may sell or otherwise distribute
the Restricted Product only as a Combined
-2-
<PAGE>
Product (as defined in Exhibit A attached hereto). For purposes of this
Agreement, "bundled" means that the Restricted Product may be sold or otherwise
distributed only: (i) as packaged with or accompanying a Creative Bundled
Product; or (ii) directly to End Users who send to Creative a coupon,
registration card or other proof of the purchase of a Creative Bundled Product.
In no event may Creative sell or distribute the Restricted Product as a
stand-alone product or price the Restricted Product as a product apart from the
Combined Product.
1.4 EXCLUSIVITY; RESTRICTIVE COVENANT. Licensor specifically agrees
that during the Activated Product Term of this Agreement with respect to the
Activated WebPhone and the Activated Product, and during the Restricted Product
Term with respect to the Restricted Product, Licensor shall not * , or otherwise
* any * party; provided, however, that Licensor may * to: (a) * ; (b) * ; (c) *
; and (d) comply with any contracts in effect on the Effective Date of this
Agreement and as specifically set forth in Exhibit F. In any event, Licensor may
not * (as defined in Exhibit B attached hereto): (x) through any * , or (y)
* . Licensor agrees that any Business WebPhone Systems sold during the Term of
this Agreement shall include a WebPhone(TM) graphical user interface and shall
not permit the * to be * under any graphical user interface that is customized
for or modified by or otherwise designed by or for such third party; PROVIDED,
HOWEVER, that Licensor may permit * : (i) does not include the * ; and (ii) * .
The license rights reserved by Licensor in this Section 1.4 include the right to
grant sublicenses to licensees ("FIRST LEVEL SUBLICENSE"); provided, however,
that any such First Level Sublicense that grants to a licensee a right to
sublicense ("SECOND LEVEL SUBLICENSE") shall restrict such Second Level
Sublicense solely to end-users.
1.5 DEMONSTRATION PRODUCTS. Subject to the restrictions and covenants
set forth in this Agreement, Licensor may bundle for distribution Demonstration
Products with other Licensor's products or third party products; provided,
however, that Licensor in no event may bundle Demonstration Products with third
party products that are competitive with any of Creative's products; and
PROVIDED, FURTHER, that Licensor notify Creative of any and all bundling
arrangements prior to concluding such arrangements.
1.6 OPTIONAL LICENSES. The parties hereto agree that, from time to time
and at Creative's initiation, they will use commercially reasonable efforts to
negotiate in good faith licenses from Licensor to Creative for other
client-based products and other technology developed by Licensor.
2. CONTINUATION OF LICENSE RIGHTS. Creative may request that Licensor engage in
timely and good faith negotiations regarding a continuation of the licenses
granted under this Agreement on commercially reasonable terms, which request
shall be made by Creative at least sixty (60) days prior to expiration of each
of the Restrictive Product Term and the Activated Product Term. In the event
that Creative no longer desires an exclusive license or that the parties are
unable, despite good faith negotiations, to agree on terms of a continuation of
the exclusive licenses granted hereunder, Creative may request that the parties
engage in timely and good faith
*Confidential portions omitted and filed separately with the Commission.
-3-
<PAGE>
negotiations regarding a continuation of the licenses granted under this
Agreement on a non-exclusive, commercially reasonable basis. In the event that
the parties have engaged in good faith negotiations regarding the extension of
the licenses granted under this Agreement on either an exclusive or nonexclusive
basis, Licensor shall not license either Licensed Product to any third party on
terms more favorable than those offered to Creative during the term of the
negotiations.
3. TRADEMARK LICENSE. During the Term of this Agreement, and subject to the
terms and conditions of this Agreement, Licensor hereby grants to Creative a
personal, nontransferable, non-exclusive, worldwide right and license (with the
right to sublicense pursuant to Section 8.0) to: (a) use and reproduce the
Licensor Marks, either alone or co-branded with any trademark or trade name
owned by Creative or to which Creative has a license to use, solely in
connection with the Licensed Products or Combined Products, and used on any
labeling, packaging, demonstrations, promotions and advertising relating
thereto; and (b) use, reproduce, and display or perform the Licensor Marks
(publicly or otherwise) in connection with demonstrations, promotions and
advertising related to the Licensed Products or Combined Products. Licensor
further grants to Creative the right to file a trademark application in any
country, either alone or together with Licensor, as shall be mutually agreed to
by both parties, or to otherwise obtain exclusive ownership rights in and to the
marks "CREATIVE WEBPHONE" and "CREATIVE WEBPHONE LITE", or to other
substantially similar marks, for use by Creative solely on Licensed Products or
Combined Products. Creative acknowledges that its use of the Licensor Marks is
limited to the use licensed in this Agreement and that Creative has not
acquired, and will not acquire, any ownership rights in the Licensor Marks.
Except as otherwise provided in this Section 3.0, Creative further agrees that
it has no power or right and shall not, during the Term of this Agreement, or,
if the Agreement is terminated pursuant to Section 15.2 or 15.3, until the
expiration of the Term as though the Agreement were still in effect: (i) attack
the title or any rights of Licensor in Licensor Marks; (ii) claim any rights,
title or interest in or to the Licensor Marks adverse to Licensor, without
Licensor's express written permission; (iii) register or apply for registration
of the Licensor Marks or any name or mark that incorporates the Licensor Marks
anywhere in the world, without Licensor's express written consent; (iv)
designate any name or mark that incorporates Licensor Marks as a common law
trademark or the like anywhere in the world without Licensor's express written
consent. Furthermore, Creative agrees to use Licensor Marks only in accordance
with the guidelines for using Licensor Marks as set forth in Exhibit D.
4. MARKETING. Licensor and Creative shall use commercially reasonable efforts to
cooperatively develop a joint marketing plan to market and otherwise promote the
Licensed Products, including to End Users upgrading from Restricted Product to
Activated Product.
5. JOINT DEVELOPMENT; CUSTOM ENGINEERING.
5.1 JOINT DEVELOPMENT. Licensor agrees to provide non-recurring
engineering ("NRE") services for Joint Development Projects to be jointly
determined by the parties hereto, and ownership in any products or other
technology developed under such Joint Development Projects shall be mutually
agreed by the parties prior to beginning such Joint Development
-4-
<PAGE>
Projects, which determination shall include amounts paid or otherwise
contributed by each party thereto.
5.2 CUSTOM ENGINEERING SERVICES. Licensor agrees to provide NRE
services as determined by Creative and subject to Licensor's review, which
review shall result, within ten (10) business days of Licensor's receipt of a
written request from Creative for such Custom Engineering Services, in a written
indication by Licensor, that Licensor either (i) accepts the request for
services; or (ii) rejects the request due to lack of resources, which may
include time and/or manpower. Ownership in any product or technology derived
from such Custom Engineering Services shall be in and to Creative.
5.3 PAYMENT FOR NRE. Creative will pay a total of * dollars (US$ * )
for such Joint Development Projects and Custom Engineering Services (the
"PROJECTS"), solely in the event and to the extent that the parties are able to
reach agreement on the terms and conditions of such Projects, and Licensor
agrees to provide * of NRE services for such Projects under terms and conditions
to be negotiated in good faith by the parties during the Term of this Agreement.
Each party shall designate a representative to be the liaison for all such
Projects.
6. OWNERSHIP AND INTELLECTUAL PROPERTY.
6.1 OWNERSHIP BY LICENSOR. Creative acknowledges that, except with
respect to specific ownership rights set forth in Sections 5.1 and 5.2 of this
Agreement and as between Creative and Licensor, Licensor is the owner of all
right, title and interest in and to the Intellectual Property Rights in the
Licensed Products. Any Intellectual Property Rights conceived, developed or
reduced to practice by Creative during the Term of this Agreement shall be owned
solely by Creative.
6.2 OWNERSHIP BY CREATIVE. Licensor hereby acknowledges and agrees
that, except with respect to specific ownership rights set forth in this
Agreement and as between Licensor and Creative, Creative owns all right, title
and interest in and to Intellectual Property Rights in the Creative Graphical
User Interface.
6.3 CUSTOMER DATABASE. The parties hereto agree that Licensor and
Creative shall jointly own any database consisting of End User data and
information, and that each party shall have full rights and access thereto.
6.4 INTELLECTUAL PROPERTY. Licensor agrees to use its reasonable best
efforts to secure and maintain all Licensor's Intellectual Property Rights in
and to the Licensed Products and to Licensor Marks to the fullest extent
available under the applicable laws in each of the Critical Territories listed
in Exhibit G attached hereto. In the event that Licensor elects not to protect
or maintain any such Intellectual Property Rights in any of the Critical
Territories, Licensor shall so notify Creative so that Creative may pursue, at
its sole expense, such Intellectual Property
*Confidential portions omitted and filed separately with the Commission.
-5-
<PAGE>
Rights ("CREATIVE IP RIGHTS"). In the event that Creative elects to pursue
protecting or maintaining such Creative IP Rights pursuant to this Section 6.4,
then: (i) Licensor agrees to fully cooperate with Creative in securing such
Creative IP Rights; and (ii) Licensor shall own all right, title, and interest
in and to any such Creative IP Rights secured and maintained by Creative
pursuant to this Section 6.4; provided, however, that Creative shall have a
royalty-free, non-exclusive right and license under such Creative IP Rights to
the extent necessary to exercise its rights set forth in this Agreement during
the Term of the Agreement; provided, however, that if, upon termination of this
Agreement Licensor fails to pay to Creative a reimbursement payment for all
reasonable costs incurred by Creative in obtaining such Creative IP Rights
hereunder, then Creative's rights and licenses in and to the Creative IP Rights
as set forth in this Section 6.4 shall survive the termination of this
Agreement.
7. DELIVERABLES. Licensor will deliver the Deliverables by the date(s) specified
in EXHIBIT C. The Deliverables shall be without material errors or other defects
and shall conform to the specifications set forth in Licensor's documentation
for the Licensed Products. The physical media of the Golden Masters on which the
Licensed Products are delivered shall be free from material defects in
workmanship and materials.
8. RIGHTS OF AFFILIATES. Creative may sublicense its rights and licenses under
this Agreement only to its Affiliates; provided, however, that such Affiliates
are subject to the same terms and conditions as Creative under this Agreement.
9. QUALITY OF PRODUCTS. Creative shall make commercially reasonable efforts to
manufacture, or have manufactured, the Licensed Products to standards that are
at least as high as those for similar products of Creative.
10. PAYMENTS AND AUDIT RIGHTS.
10.1 UNLIMITED USE FEE. Creative shall pay to Licensor an unlimited use
fee of $ * (US$ * ) upon acceptance by Creative of the Deliverables for the
Restricted Product pursuant to Section 7 hereto, which acceptance shall not be
unreasonably withheld by Creative. Except as set forth in Sections 10.2 and 10.3
hereto, there shall be no further per-copy or other payments due or payable by
Creative to Licensor for Creative's exercise of its rights and licenses granted
hereunder.
10.2 PER COPY AND ADVANCE FEES. Creative shall pay to Licensor a
per-copy fee of * (US$ * ) per copy of each Activated Product sold or
distributed by Creative via non-Internet based distribution channels. In
addition, Creative shall pay an advance fee amount of * (US$ * ) upon acceptance
by Creative of the Deliverables for the Licensed Product pursuant to Section 7
hereto. Such advance fee shall be fully creditable against the per-copy fees set
forth in this Section 10.2.
*Confidential portions omitted and filed separately with the Commission.
-6-
<PAGE>
10.3 REVENUE SHARING. Creative shall pay to Licensor * percent ( * %)
of the Licensed Product Revenue from any Activated Product sold by Creative to
End Users directly from Creative via Creative's web site on the Internet.
Creative shall remit amounts due to Licensor within forty-five (45) days after
the end of each quarter. Concurrently with each payment, Creative shall submit
to Licensor a report setting forth the basis for calculation of the amount paid,
including: (i) the number of End Users who purchased a Licensed Product during
the reporting period; (ii) the total amount of Licensed Product Revenue received
by Creative from such End Users; and (iii) Licensor's portion of such Licensed
Product Revenue. Creative shall maintain accurate records of all End Users who
purchase Licensed Product from Creative.
10.4 PAYMENT TERMS. The payments set forth in Sections 10.2, 10.3, and
10.6 hereto shall be payable on a quarterly basis based on total number of units
of the Licensed Products shipped to distributors and End Users during the
preceding quarter, or total number of units upgraded from Restricted Product to
Activated Product during the preceding quarter, as applicable. Payments shall be
due and payable within forty-five (45) days after the last day of the preceding
quarter. During the last six (6) months of the Term and during the six-month
Sell-Off Period (as defined below in Section 15.4), Creative shall have the
right to hold back ten percent (10%) of any per-copy fees owed to Licensor to
cover all returns of the Licensed Products. Within forty-five (45) days after
the end of the Sell-Off Period, Creative will provide Licensor with a final
accounting and will pay all fees then owed to Licensor.
10.5 REPORTING BY CREATIVE. On a quarterly basis, Creative shall submit
to Licensor a report stating the number of copies of Restricted Product
distributed by Creative pursuant to this Agreement.
10.6 PAYMENTS BY LICENSOR TO CREATIVE. Licensor shall pay Creative *
percent ( * %) of the Revenue received by Licensor during the Term of this
Agreement and for a period of * ( * ) years beyond the termination or expiration
of this Agreement. Licensor shall remit amounts due to Creative within
forty-five (45) days after the end of each quarter. Concurrently with each
payment, Licensor shall submit to Creative a report setting forth the basis for
calculation of the amount paid, including: (i) the number of End Users who
upgraded from Restricted Product to Activated Product; (ii) the total amount of
Revenue received by Licensor from such End Users; and (iii) Creative's portion
of such Revenue. Licensor shall track through a vendor ID and maintain accurate
records of all End Users who upgrade from the Restricted Product to the fully
featured Activated Product During the last six (6) months of the Term and during
the six-month Sell-Off Period (as defined below in Section 15.4), Licensor shall
have the right to hold back ten percent (10%) of any fees owed to Creative to
cover all refunded upgrades from Restricted Product to Activated Product. Within
forty-five (45) days after the end of the Sell-Off Period, Licensor will provide
Creative with a final accounting and win pay all fees then owed to Creative.
*Confidential portions omitted and filed separately with the Commission.
-7-
<PAGE>
10.7 AUDIT RIGHTS. Creative and Licensor shall have the right, once in
any twelve-month (12) period, to have a mutually acceptable independent auditor
inspect the books and records of Creative and Licensor relating to the Licensed
Products to verify compliance by Creative and by Licensor with the payment
obligations of the respective parties as set forth in this Section 10. The
auditor may not be paid on a contingency or other basis related to the outcome
of the audit, and shall execute a confidentiality agreement with both parties in
a form mutually acceptable to the parties that prohibits the auditor from
divulging information obtained in connection with the audit. Any such audit
shall be conducted during regular business hours, in such a manner as not to
interfere with the normal business activities of either party, and upon
providing reasonable notice to the audited party. Such audit will be at the
expense of the auditing party; provided, however, that if such audit reveals
that the audited party has underpaid the auditing party by more than five
percent (5%), the audited party shall pay the reasonable cost of such audit.
Prompt adjustment shall be made to correct for any underpayments or overpayments
disclosed by such audit
10.8 TAXES. If income taxes are required to be withheld by a foreign
government on payments required hereunder, on such withholding taxes as will
enable Licensor to claim and receive a U.S. foreign tax credit, Creative may
deduct such taxes from the amount owed Licensor and pay such withholding taxes
to the appropriate tax authority; provided, however, Creative secures and
delivers to Licensor an official receipt for any such taxes withheld or other
documents reasonably necessary to enable Licensor to claim a U.S. foreign tax
credit.
11. DELIVERY OBLIGATIONS; ACCEPTANCE OF DELIVERABLES; DISTRIBUTION OBLIGATIONS.
11.1 ACCEPTANCE OF UPGRADES AND UPDATES. Creative and Licensor shall
jointly participate in testing and verification of each Upgrade and Update in
its beta version of the Licensed Product, and shall jointly agree on the
commercial release version of each such Upgrade and Update. Within seven (7)
days of Creative's receipt of any commercial release version Upgrade and Update
(collectively, the "DELIVERED PRODUCT(S)"), Creative shall notify Licensor, in
writing, of its acceptance or rejection of any Delivered Products. If Creative
rejects any Delivered Products, Creative shall provide reasons for its rejection
and shall, at the request of Licensor, return the rejected Delivered Product to
Licensor. Licensor shall make commercially reasonable efforts to promptly
correct and replace such rejected Delivered Product. If, however, Licensor fails
to deliver an acceptable replacement Delivered Product within sixty (60) days of
the original delivery date, Creative shall, at its option, have the right to
terminate this Agreement and Licensor shall pay to Creative a penalty payment
for each instance of failure under this Section 11.1, in the amount of
$25,000.00.
11.2 CREATIVE'S DISTRIBUTION OBLIGATIONS. Creative shall distribute a
minimum of * ( * ) units of Activated Product, via any distribution channel, per
year during the Term of the Agreement, for total of * ( * ) units over the Term
of the Agreement; provided, however, that the Agreement is not terminated
pursuant to Section 15.2 or 15.3 hereto.
*Confidential portions omitted and filed separately with the Commission.
-8-
<PAGE>
12. NEW RELEASES; SUPPORT.
12.1 NEW RELEASES. Licensor shall deliver to Creative, promptly upon
the availability thereof, Masters for any Updates and Upgrades of the Licensed
Products during the Term of this Agreement, and such Updates and Upgrades shall
be deemed part of the Licensed Products. In addition, Licensor agrees to upgrade
the Restricted Product to maintain the relatively same difference in
functionality between the Restricted Product and the Activated Product. Licensor
shall make commercially reasonable efforts to notify Creative at least ninety
(90) days prior to the date of introduction of any such Updates and Upgrades.
12.2 CUSTOMER SUPPORT. Licensor shall be responsible for customer
support of the Licensed Products and shall take steps reasonably identified by
Creative as necessary so that End Users will perceive customer support as being
uniquely tailored to Licensed Products. Creative shall be responsible for
customer support of the Creative Bundled Products. Each party shall provide to
customers of the Combined Products the same support that it provides to
customers of its stand-alone products. Such support shall include, at a minimum,
reasonable telephone support during the party's normal business hours. All
Updates shall to the extent possible be provided to Creative by Licensor as
patches and in downloadable form so that they may be posted by Creative and the
Licensor on their BBSs. Licensor shall maintain the availability of its server
on a continual basis as well as a back-up system.
12.3 CUSTOMER WARRANTY SUPPORT. Creative shall be responsible to End
Users for all warranty obligations relating to any defects in the manufacture of
the Licensed Products, provided that such defective Licensed Products were
manufactured by or for Creative. If a Licensed Product qualifies for warranty
service under the provisions of the applicable end user agreement due to a
defect in Creative's manufacture of such product, Creative will provide the end
user with a replacement Licensed Product. Creative shall not be liable for
payment of any per-copy running payments hereunder for such replacement copies.
12.4 LICENSOR SUPPORT. During the Term of the Agreement, Licensor shall
provide Creative with: (i) all available solutions and corrections for reported
problems which are replicated and diagnosed by Creative as a defect in the
Licensed Products; and (ii) such changes and corrections as are necessary to
keep the Licensed Products substantially in conformance with applicable
Documentation and specifications. In addition, Licensor shall provide to
Creative technical support of at least telephone support for problem resolution
from 8:00am to 5:00pm (Pacific Standard Time) weekdays, excluding published
holidays. Upon such notice to Licensor of a problem with the Licensed Products,
Licensor shall use its best efforts to correct or circumvent the problem. Any
corrections to the Licensed Products will be made to the most current generally
available release; PROVIDED, HOWEVER, that Licensor will use its best efforts to
support the previously released version of such Licensed Product for twelve (12)
months after the introduction of a new generally available release.
13. PRODUCT NOTICES. Creative shall reproduce, and shall not remove, any
copyright, trademark or other proprietary rights notices included in the
Licensed Products. Creative shall not make any representations or warranties
concerning the Licensed Products, except as set forth
-9-
<PAGE>
in End User Documentation and other materials provided by Licensor or as
otherwise approved in writing by Licensor.
14. LOCALIZED PRODUCT. In the event that Creative decides, in its sole
discretion, to create Localized Product (as defined in EXHIBIT A attached
hereto), then Creative shall so notify Licensor. Within ten (10) business days
of receipt by Licensor of such notice, Licensor shall provide to Creative a copy
of selected Source Code modules of the identified Licensed Products which, in
Licensor's sole discretion, are necessary for Creative to develop the Localized
Product. All other code modules of the identified Licensed Product, as well as
any other code or tools identified by Creative as being reasonably necessary to
create such Localized Product, shall be provided to Creative in object code form
only. In the event that Licensor provides to Creative a copy of the selected
Source Code modules pursuant to this Section 14.0, Creative shall treat such
Source Code modules as Proprietary Information, subject to the provisions of
Section 19.0 hereto, and shall be granted a non-exclusive, non-transferable
right and license to use, execute, display and prepare Derivative Works of,
internally within Creative, such Source Code modules solely for the purposes set
forth in this Section 14.0. All builds and future releases and versions of the
Product shall be developed and delivered by Licensor.
15. TERM AND TERMINATIONS; TERM SUSPENSION.
15.1 TERM. This Agreement shall commence as of the Effective Date and
continue until the expiration of the Term, as defined in Exhibit A attached
hereto.
15.2 TERMINATION WITH NOTICE. A party may terminate this Agreement for
a material breach of any condition, warranty or obligation of this Agreement by
the other party if the breach remains uncured thirty (30) days after receipt of
written notice by the breaching party.
15.3 AUTOMATIC TERMINATION. This Agreement shall terminate
automatically and without notice upon: (i) the institution by or against
Licensor, except by Creative (provided, however, that Creative may act in
concert with other shareholders of Licensor without affecting any of Creative's
rights hereunder), of insolvency, receivership or bankruptcy proceedings or
entering of a final judgment or decree against Licensor in any other proceedings
for the settlement of Licensor's debts, which judgment or decree has a material
adverse effect on Licensor's ability to perform its obligations under this
Agreement; (ii) Licensor's making a general assignment for the benefit of its
creditors; (iii) Licensor's dissolution; or (iv) Licensor's cessation of
business for a period of ninety (90) days or more. This Agreement also shall
terminate automatically and without notice upon: (a) the institution by or
against Creative, except by Licensor, of insolvency, receivership or bankruptcy
proceedings or entering of a final judgment or decree against Creative in any
other proceedings for the settlement of Creative's debts, which judgment or
decree has a material adverse effect on Creative's ability to perform its
obligations under this Agreement; (b) Creative's making a general assignment for
the benefit of its creditors; (c) Creative's dissolution; or (d) Creative's
cessation of business for a period of ninety (90) days or more.
-10-
<PAGE>
15.4 EFFECT OF TERMINATION. Upon termination of this Agreement (other
than under Section 15.3(a), (b), (c), or (d) hereto) or expiration of the
Restricted Product Term or the Activated Product Term; (i) except as otherwise
expressly stated herein, Creative's rights and license under this Agreement
shall terminate with respect to the Restricted Product or Activated Product, as
applicable (referred to as the "TERMINATED PRODUCT") and the Licensor Marks;
provided, however, that (unless this Agreement has been terminated by Licensor
pursuant to Section 15.2 hereto) Creative shall have the non-exclusive right to
distribute the copies of the Terminated Product that were reproduced and
manufactured before the expiration or termination for a period of six (6) months
after such expiration or termination (the "SELL-OFF PERIOD"); (ii) Creative
shall return to Licensor or destroy all Golden Masters of the Terminated
Product; (iii) Creative shall continue to have the right to receive payments
from Licensor in accordance with the terms and conditions of this Agreement,
including pursuant to Section 10.6 hereto; and (iv) each party shall (except as
necessary for the exercise of Creative's rights under clause (i) of this Section
15.4) return to the other party any Proprietary Information (as defined below)
of the other party that is in tangible (including machine-readable) form. Upon
termination of this Agreement (other than under Sections 15.3(i), (ii), (iii),
or (iv) hereto) or expiration of the Restricted Product Term or the Activated
Product Term, Licensor shall continue to have the right to receive payments from
Creative in accordance with the terms and conditions of this Agreement,
including pursuant to Sections 10.2 and 10.3 hereto. Upon the occurrence of any
of the events contained in Section 15.3(i), (ii), (iii), or (iv), any and all
licenses granted to Creative under this Agreement shall continue until the
expiration of the Term as though the Agreement were still in effect.
15.5 TERM SUSPENSION. In the event that any regulatory or government
agency imposes restrictions, including tariffs, that affect the ability of
either party hereto to exercise its rights or perform its obligations under this
Agreement, then the Term of this Agreement, with respect to the Licensed Product
affected by such restrictions, shall be suspended until such time as the
restriction is removed. In the event that any country imposes any tariffs,
sanctions, or other restriction on the sale or distribution of the Licensed
Products, then the parties agree to renegotiate the affected terms of this
Agreement, including any of the terms set forth in Section 10 hereto.
16. SOURCE CODE ESCROW. Upon receipt by Licensor of payment by Creative to
Licensor of the Limited Use fee (Section 10.1) and Advance fee (Section 10.2),
Licensor shall cause to be deposited with the escrow agent a complete working
copy of the Source Code for both Licensed Products, under the form of software
escrow agreement set forth in Exhibit E attached hereto. The following events
shall cause the Source Code in escrow to be released to Creative: (i) the
institution by or against Licensor, not by Creative, of insolvency, receivership
or bankruptcy proceedings or entering of a final judgment or decree against
Licensor in any other proceedings for the settlement of Licensor's debts, which
judgment or decree has a material adverse effect on Licensor's ability to
perform its obligations under this Agreement; (ii) Licensor's dissolution; (iii)
Licensor's cessation of business for a period of ninety (90) days or more; or
(iv) breach of Licensor's obligations to provide the Source Code modules
pursuant to Section 14.0 hereto. In the event that the Source Code is released
pursuant to this Section 16.0 (except pursuant to Section 16.0(iv)), Licensor
acknowledges and agrees that Creative shall have a worldwide,
-11-
<PAGE>
nonexclusive, perpetual license to use, reproduce, have reproduced, manufacture,
have manufactured, modify or have modified, and make derivative works from the
Source Code solely to the extent necessary, in Creative's sole discretion, to
support and provide customer maintenance for the Licensed Products. In the event
that the Source Code is released pursuant to Section 16.0(iv), Licensor
acknowledges and agrees that Creative shall, during the term of the Agreement,
have a worldwide, nonexclusive, license to use, reproduce, have reproduced,
manufacture, have manufactured, modify or have modified, and make derivative
works from the Source Code solely to the extent necessary, in Creative's sole
discretion, for Creative to exercise its rights under Section 14.0 hereto.
17. WARRANTIES.
17.1 BY CREATIVE. Creative represents and warrants that: (i) Creative
has the right to accept the rights and licenses contemplated by this Agreement,
without the need for any consents, approvals or immunities not yet obtained; and
(ii) Creative has full power to enter into this Agreement and to perform its
obligations hereunder.
17.2 BY LICENSOR. Licensor represents and warrants that: (i) the
Licensed Products operate and will operate substantially in accordance with the
specifications set forth in Licensor's documentation therefor; (ii) the Licensed
Products and Licensor Marks and the use thereof as contemplated by this
Agreement do not infringe or misappropriate any copyright, trade secret,
publicity, privacy, or other rights of any third party, and are not defamatory
or obscene; (iii) Licensor has the sole and exclusive right to grant the rights
and licenses contemplated by this Agreement, without the need for any consents,
approvals or immunities not yet obtained; (iv) Licensor has full power to enter
into this Agreement, to grant the rights and licenses granted hereunder, and to
perform its obligations hereunder, and (v) to the best of Licensor's knowledge
as of the Effective Date of the Agreement, the Licensed Products do not infringe
any patent or trademark rights of any third party.
17.3 LIMITATION OF WARRANTIES. THUS SECTION 17 SETS FORTH ALL OF THE
WARRANTIES OF A PARTY TO THE OTHER PARTY. EACH PARTY HEREBY DISCLAIMS ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
17.4 LIMITATION OF LIABILITIES. EXCEPT FOR OBLIGATIONS UNDER SECTION
18, NEITHER PARTY SHALL HAVE ANY LIABILITY FOR LOSS OF PROFITS, LOSS OF REVENUES
OR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES, EVEN
IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
18. INDEMNIFICATION.
18.1 BY CREATIVE. Subject to the conditions set forth in Section 18.3
hereto, Creative shall indemnify, hold harmless and defend Licensor against any
claim, suit or proceeding and
-12-
<PAGE>
any damages or liability therefrom or settlement thereof (including reasonable
fees of attorneys and related costs) to the extent: (i) based on a claim that,
solely as a result of the processes or materials selected by Creative for
manufacturing and reproduction, a Licensed Product infringes the patent,
copyright, trademark, trade secret, publicity, privacy, defamation or other
rights of any third party; (ii) resulting from any material breach of this
Agreement by Creative; or (iii) based on a claim that Creative's manufacture,
use, sale, or distribution of a Combined Product infringes the patent,
copyright, trademark, trade secret, publicity, privacy, or other rights of any
third party, or is defamatory or obscene, to the extent that such infringement
is due solely to the combination of a Licensed Product with a Creative Bundled
Product and except to the extent that such infringement is due solely to the
Licensed Product.
18.2 BY LICENSOR. Subject to the conditions set forth in Section 18.3
hereto, Licensor shall indemnify, hold harmless and defend Creative against any
claim, suit or proceeding and any damages or liability therefrom or settlement
thereof (including reasonable fees of attorneys and related costs) to the
extent: (i) based on a claim that a Licensed Product or a Licensor Mark
infringes the patent, copyright, trademark, trade secret, publicity, privacy, or
other rights of any third party, or is defamatory or obscene, except as to which
Creative owes indemnity to Licensor pursuant to Section 18.1; (ii) based on a
representation or warranty concerning a Licensed Product set forth in End User
Documentation and other materials provided by Licensor or otherwise approved in
writing by Licensor, or (iii) resulting from any material breach of this
Agreement by Licensor, provided, however, that Licensor's total liability
hereunder with respect to all claims that Licensed Product infringes a third
party patent or that Licensor Marks infringe a third party trademark, shall be
limited to the total of (x) * dollars ($ * ); (y) the total amounts of revenue
received by Licensor from Creative pursuant to Section 10.3; and (z) the total
amounts of revenue received by Licensor pursuant to Section 10.6, except, * .
18.3 CONDITIONS OF INDEMNIFICATION. A party shall not be obligated to
indemnify, hold harmless and defend unless (and only to the extent) the other
party: (i) provides prompt notice of the commencement of the claim, suit or
proceeding for which indemnification is sought; (ii) provides cooperation to
such indemnifying party; and (iii) allows such indemnifying party to control the
defense and settlement, provided that neither party may settle a claim, suit or
proceeding without approval of the other party, which approval shall not be
unreasonably withheld.
18.4 INFRINGEMENT OPTIONS. If there is a material, bona fide claim of
infringement of any patent, copyright, trademark, trade secret, publicity,
privacy, or other rights of any third party, or of defamation or obscenity, the
indemnifying party shall have the right, at its option, to the extent
practicable, to mitigate its liability by: (i) replacing the infringing products
with noninfringing products that offer substantially the same functionality and
benefits as the infringing products, and paying for any manufacturing and
handling expenses associated with back inventory that is infringing and cannot
be sold or distributed or, (ii) in Licensor's case,
*Confidential portions omitted and filed separately with the Commission.
-13-
<PAGE>
terminating the licenses granted hereunder and Creative's payment obligations
under Sections 10.2 and 10.3 shall terminate immediately.
19. PROPRIETARY INFORMATION.
19.1 DEFINITION. As used in this Agreement, a party's means all
information that has been created, discovered, developed or otherwise became
known to that party, or any information in which property rights have been
assigned or sold to the party, that has commercial value in the business in
which the party is engaged and is treated as confidential. Proprietary
Information includes, without limitation, processes, formulas, ideas, concepts,
discoveries, developments, designs, inventions, techniques, marketing plans,
strategies, forecasts, new product projections, product pricing and costs, sales
reports, customer and supplier lists, all modifications, additions,
improvements, and adaptations of any of the foregoing, and all present and
future applications of any of the foregoing. A party's Proprietary Information
does not include any information that: (i) on the date of this Agreement, is
generally known to the public; (ii) become generally known to the public after
the date of this Agreement other than as a result of an act or omission of
either party or either party's directors, officers, employees, or agents; (iii)
was rightfully known by the other party prior to the date of this Agreement;
(iv) is or was disclosed by the party to third parties generally without
restriction on use or disclosure; or (v) was or is independently developed by
the other party without violation of the confidentiality provisions of this
Agreement or trade secret rights of the party. Each party agrees to use best
efforts to mark as confidential or proprietary any information that it delivers
to the other party (in any form) and which it considers to be Proprietary
Information and to advise the other party of the confidential nature of any
Proprietary Information that is provided verbally. Upon request by either party,
the other party shall advise whether or not it considers any particular
information or materials to be Proprietary Information.
19.2 OBLIGATION TO MAINTAIN CONFIDENTIALITY. Each party agrees to
maintain the confidentiality of the other party's Proprietary Information using
the same degree of care and security as the party uses to maintain the
confidentiality of its own Proprietary Information. Each party shall disclose
the other party's Proprietary Information only to persons who are: (i)
employees, agents, customers for the Licensed Products (including, but not
limited to OEMS); or (ii) other potential customers for the Licensed Products
(including, but not limited to OEMS) of the disclosing party who have a
reasonable need to know such Proprietary Information to further the purposes of
this Agreement; and (iii) legally bound by law or by a written agreement
protecting the Proprietary Information to the same extent as protected in this
Agreement. Each party acknowledges that the disclosure of the other party's
Proprietary Information may cause irreparable injury to the other party and,
therefore, either party may, in addition to any other available remedies, seek
injunctive relief against the breach or threatened breach of the terms of this
Section 19.2.
19.3 HANDLING PROPRIETARY INFORMATION AFTER TERMINATION OF AGREEMENT.
Each party's obligations with respect to the other party's Proprietary
Information shall survive for a period of five (5) years following the
termination of this Agreement. Upon termination of this Agreement for any man,
each party agrees that it will upon written request of the other party,
-14-
<PAGE>
use best efforts to return to the other party or to destroy (and certify such
destruction in writing to the other party) all Proprietary Information of the
other party.
20. MISCELLANEOUS.
20.1 PRESS RELEASES. The parties will cooperate to create appropriate
public announcements of the relationship set forth in this Agreement, including
any reference to a joint development performed hereunder, which reference shall
be at Creative's sole discretion. Neither party hereto shall, in any manner,
disclose, advertise, or publish the terms of, or any information concerning,
this Agreement without the prior written consent of the other party.
20.2 SURVIVAL. Sections 6.0, 10.6 (solely as stated therein), 10.7
(solely for a period of three (3) months beyond the Sell-Off Period), 10.8,
13.0, 15.4, 17.0, 18.0, 19.0, and 20.0 shall survive the termination or
expiration of this Agreement.
20.3 GOVERNING LAW; EQUITABLE RELIEF. This Agreement shall be governed
by and construed in accordance with the laws of State of California as they
apply to contracts entered into and wholly to be performed within the State of
California, and with the laws of the United States. The parties hereto consent
to the personal and exclusive jurisdiction and venue of the Northern District of
California federal and state courts, as applicable. Each party acknowledges that
a material breach of this Agreement by one party hereto may cause irreparable
injury to the other party and, therefore, either party may, in addition to any
other available remedies, seek injunctive relief against the breach or
threatened breach of the terms of this Agreement.
20.4 WAIVER OF JURY TRIAL. Each of Licensor and Creative do hereby
knowingly, voluntarily, intentionally and irrevocably waive any right any party
may have to a jury trial in every jurisdiction in any action, proceeding or
counterclaim brought by either of the parties hereto against the other party
hereto or their respective Affiliates, successors or assigns in respect of any
matter arising out of or in connection with this Agreement or any other document
executed and delivered by any party in connection therewith (including, without
limitation, any action to rescind or cancel this Agreement and any claims or
defenses asserting that this Agreement was fraudulently induced or otherwise
void or voidable.)
20.5 RELATIONSHIP OF PARTIES. The parties to this Agreement are
independent contractors. Neither party shall have the right to bind, represent
or act for any other party. The parties shall have no agency, partnership, joint
venture or fiduciary duties to each other. Nor shall either party have any
obligation or duty to the other party except as expressly and specifically set
forth herein, nor shall any such obligation or duty be implied by or inferred
from this Agreement or the conduct of the parties hereunder. Without limitation
of the generality of the foregoing, nothing in this Agreement will prevent
Creative from marketing and distributing any other work, whether similar or
dissimilar to the Licensed Product, and nothing herein will require Creative to
devote the same or similar efforts to distributing the Licensed Products as it
devotes to other works.
-15-
<PAGE>
20.6 OTHER AGREEMENTS. Neither party shall agree to any contractual
provision or term in any agreement with any third party which contains a
provision or term that causes such party to be in breach of or violates this
Agreement.
20.7 MERGER. This Agreement constitutes the entire agreement between
the parties relating to the subject matter hereof and supersedes all prior or
simultaneous representations, discussions, negotiations and agreements, whether
written or oral. This Agreement may be amended only by a writing signed by both
parties.
20.8 ASSIGNMENT. This Agreement may not be assigned or delegated by
either party without the prior written approval of the other party, except that
either party may assign all its rights and delegate all its obligations as part
of a merger, reorganization or sale of all or substantially all its assets.
Subject to the foregoing, this Agreement is binding on the parties and their
successors and assigns.
20.9 WAIVER. The waiver by either party of a breach of any provision
contained herein shall be in writing and shall in no way be construed as a
waiver of any succeeding breach of such provision or a waiver of the provision
itself.
20.10 SEVERABILITY. If any provision of this Agreement is unenforceable
or invalid under any applicable law or is so held by applicable court decision,
such unenforceability or invalidity shall not render this Agreement
unenforceable or invalid as a whole, and, in such event, such provision shall be
changed and interpreted so as to best accomplish the objectives of such
provision within the limits of applicable law or applicable court decision.
20.11 FORCE MAJEURE. No party shall be liable for failure to perform,
in whole or in material part, its obligations under this Agreement if such
failure is caused by an event or condition not existing as of the date of this
Agreement and not reasonably within the control of the affected party,
including, without limitation, by fire, flood, typhoon, earthquake, explosion,
strike, labor trouble or other industrial disturbance, unavoidable accident, war
(declared or undeclared), act of terrorism, sabotage, embargo, blockade, act of
applicable governmental authorities, riot, insurrection, or any other cause
beyond the control of such party; provided, however, that such party promptly
notifies the other affected party of the occurrence of the event of force
majeure and takes all reasonable steps necessary to mitigate the effects of such
event and to resume performance of its obligations which were affected by such
event.
20.12 BANKRUPTCY. The parties hereto agree that the rights granted to
Creative hereunder, including those granted in Sections 1 and 3, are rights in
"intellectual property" within the scope of Section 101 of the United States
Bankruptcy Code.
20.13 NOTICES. All notices required hereunder shall be in writing and
shall be sent by U.S. mail (first class) or nationally-recognized courier
service (E.G., DHL, Federal Express), with all postage or delivery charges
prepaid, or may be sent via facsimile, subject to confirmation via U.S. mail or
nationally-recognized courier service, and shall be addressed to the parties at
their addresses set forth on the signature page of this Agreement or to such
other
-16-
<PAGE>
address(es) as may be furnished by written notice in the manner set forth
herein. Notices shall be deemed to have been served when delivered or if
delivery is not performed as a result of the addressee's fault, when tendered.
20.14 COMPLIANCE WITH U.S. EXPORT LAWS. The parties hereto acknowledge
that the laws and regulations of the United States restrict the export and
re-export of commodities and technical data of United States origin, including
the Licensed Products and related Documentation. Each of the parties hereto
agrees that it will not export or re-export the Licensed Products or related
Documentation in any form without the appropriate United States and foreign
government licenses.
20.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one and the same
instrument. Each party shall receive a duplicate original of the counterpart
copy or copies executed by it. For purposes hereof, a facsimile copy of this
Agreement, including the signature pages hereto, shall be deemed to be an
original. Notwithstanding the foregoing, the parties shall each deliver original
execution copies of this Agreement to one another as soon as practicable
following execution thereof.
[END OF TEXT - EXHIBITS FOLLOW]
-17-
<PAGE>
EXHIBIT A
DEFINITIONS
For purposes of this Agreement, the following words and phrases shall
have the following meanings:
"ACTIVATED PRODUCT" shall mean the client-based voice communication
software developed by Licensor and based upon or derived from the WebPhone
Technology and that has full functionality, as described in EXHIBIT B attached
hereto, and that integrates, incorporates, or otherwise includes the Creative
Graphical User Interface.
"ACTIVATED PRODUCT TERM" shall mean * from the earlier of: (i) * ; or
(ii) the date Creative first sells or distributes the Activated Product to a
third party.
"ACTIVATED WEBPHONE" shall mean a pre-paid client-based voice
communication software developed by licensor and based upon or derived from the
WebPhone Technology.
"AFFILIATE" shall mean an entity that controls, is controlled by or is
under common control with a relevant party hereto (with "control" meaning
ownership * of the voting stock of the entity or, in the case of a noncorporate
entity, an equivalent interest).
"BUSINESS WEBPHONE SYSTEM" shall mean the client-based voice
communication software developed by Licensor that includes specialized servers
and WebPhone client for receiving and transmitting multiple simultaneous
telephone calls, for providing Internet and computer network based business
communication solutions, and that incorporates the WebPhone Technology and
Licensor's proprietary WebPhone(TM) graphical user interface, and as further
described in EXHIBIT B attached hereto.
"COMBINED PRODUCT" shall mean a Creative Bundled Product distributed
with a Licensed Product.
"CREATIVE BUNDLED PRODUCT" shall mean any hardware or software product
of Creative or its Affiliates.
"CREATIVE GRAPHICAL USER INTERFACE" shall mean the Creative-specific
software developed by Licensor on behalf of and under the direction and control
of Creative that provides a graphical user interface between the End User and
the Licensed Product.
"CUSTOM ENGINEERING SERVICES" shall mean such services which are
provided by Licensor using Creative technology and which result in products or
technology that is derived from Creative technology.
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
"DEMONSTRATION PRODUCT" shall mean the client-based voice communication software
developed by Licensor and based upon or derived from the WebPhone Technology and
that has more limited, or restricted, functionality, than the Restricted
Product, as licensed to Creative under the license agreement as described in
EXHIBIT B attached hereto.
"DERIVATIVE WORKS" shall mean any and all "derivative works" and "compilations"
within the meaning of such terms as defined in the U.S. Copyright Act (17 U.S.C.
ss.101 et seq.)
"DOCUMENTATION" shall mean end-user instructions, manuals, diagrams, and other
written material, in printed or electronic form, describing the functions, use
and operation of the Licensed Products, prepared by or for Licensor and all
revisions, including localizations and translations, thereto.
"END USER" shall mean any end user of a Licensed Product
"GOLDEN MASTER" or "MASTER" shall mean the version of a Licensed Product that
meets all applicable functional and performance specifications for such Licensed
Product, that is in a form suitable for production mastering and commercial
distribution or transmission, and that includes a unique vendor identification
code.
"INTELLECTUAL PROPERTY RIGHTS" shall mean any trade secrets, patents,
copyrights, trademark, know-how, moral rights and similar rights of any type
under the laws of any governmental authority, domestic or foreign including all
applications and registrations relating to any of the foregoing.
"JOINT DEVELOPMENT PROJECTS" shall mean projects as mutually agreed to by
Creative and Licensor and which shall not include Creative technology.
"LICENSED PRODUCT(S)" shall mean, collectively, the Restricted Product and the
Activated Product.
"LICENSED PRODUCT REVENUE" shall mean all amounts received by Creative from End
Users of Licensed Products purchased directly from Creative via Creative's web
site on the Internet, less any discounts, and credits for returned copies or
copies distributed as replacements for defective copies, and fees paid to
banking establishments solely related to conducting credit card transactions.
"LICENSOR MARKS" shall mean the trademarks, whether or not registered, specified
on EXHIBIT D attached hereto.
"LOCALIZED PRODUCTS(S)" shall mean any customizations or modifications that do
not affect the architecture of the version of a Licensed Product, including
translations, as necessary or desirable, as solely determined by Creative, to
exercise the licenses granted to Creative hereunder with respect to such
Licensed Product in any foreign territory.
ii CONFIDENTIAL
<PAGE>
"OBJECT CODE" shall mean the computer executable binary code derived from
compiled Source Code for execution on a computer hardware system.
"RESTRICTED PRODUCT" shall mean the client-based voice communication software
developed by Licensor and based upon or derived from the WebPhone Technology and
that has limited, or restricted, functionality, as described in EXHIBIT B
attached hereto, and that incorporates, integrates, or otherwise includes the
Creative Graphical User Interface.
"RESTRICTED PRODUCT TERM" shall mean the period beginning on the Effective Date
of this Agreement and continuing thereafter until fourteen (14) months after the
earlier of: (i) August 3, 1996; or (ii) the date Creative first sells or
distributes the Restricted Product to a third party.
"REVENUE" shall mean all amounts actually received by Licensor from End Users of
the Restricted Product purchased from Creative, who subscribe to or otherwise
purchase or upgrade to the Activated Product, less any discounts, and credits
for returned copies or copies distributed as replacements for defective copies,
and fees paid to banking establishments solely related to conducting credit card
transactions.
"SOURCE CODE" shall mean a presentation of a computer program, regardless of the
form in which it is stored, from which it is possible to discern the logic,
algorithms, internal structure, operating features and any other design
characteristics of such computer program, together with related source
materials.
"TERM" mean the Restricted Product Term or the Activated Product Term, as
applicable.
"UPDATES" shall mean new versions, including maintenance releases, and
localizations and translations thereof, of a Licensed Product that contain bug
fixes, error corrections and minor enhancements, but not containing major
enhancements or significant new functionality, as determined in Licensor's
reasonable discretion, and any related documentation.
"UPGRADES" shall mean new versions of a licensed Product that contain major
enhancements and significant new functionality, including localizations and
translations thereof, as determined in Licensor's reasonable discretion, and any
related documentation.
"WEBPHONE TECHNOLOGY" shall mean that technology developed by Licensor prior to
the Effective Date of this Agreement, that is client-based voice communication
software developed by Licensor having the functionality, as described in EXHIBIT
B attached hereto, and that forms the core technology from which the Restricted
Product and the Activated Product are derived.
iii CONFIDENTIAL
<PAGE>
EXHIBIT B
SPECIFICATIONS
NOTE: There may be additional features in both Restricted and Activated
Products.
I. WEBPHONE TECHNOLOGY
The WebPhone client software component of NetSpeak's WebPhone family of
products.
II. RESTRICTED PRODUCT
*
III. MINIMUM ACTIVATED PRODUCT
*
IV. BUSINESS WEBPHONE SYSTEMS
*
<PAGE>
EXHIBIT C
DELIVERABLES
------------
Licensor shall deliver four (4) copies each of the following Deliverables:
1. Golden Master of the Licensed Product (the initial deliverable shall be the
most current version as of the Effective Date, but in any event no less recent
that version 2.0 of such Licensed Product);
2. any related Documentation and other End User materials, each in both
electronic and film-negative, camera-ready form, including, without limitation:
(a) a single page, hard copy instruction card that will cost no more than
US$0.10/copy to reproduce and that will give End Users instructions for the
installation of each Licensed Product;
(b) form of End User License Agreements;
(c) samples of the product packaging,
(d) a brief product description;
(e) any trademarks, copyright and other legal proprietary notices; and
(f) artwork (including 35mm screen shots and box shots) for each Licensed
Product; and
3. Such other materials for the distribution of each Licensed Product and the
exercise of Creative's rights hereunder as may be reasonably requested from time
to time by Creative.
vi CONFIDENTIAL
<PAGE>
EXHIBIT D
LICENSOR MARKS
--------------
WEBPHONE
Guidelines for Using the Licensor Marks
1.0 General Overview
1.1 These guidelines ("Guidelines") set forth the proper treatment and use of
the Licensor Marks on the Licensed Products and Combined Products, hereafter for
the purposes of this Exhibit referred to as "Licensed Products," and in
advertising. Compliance with these Guidelines is the sole responsibility of
Creative. In the event of a conflict between the provisions of this Exhibit D
and the Technology License and Development Agreement, the Agreement shall
control.
2.0 Use of Licensor Marks
2.1 The Licensor Marks may only be used on the Licensed Products, its
packaging, collateral documentation and in advertising for the Licensed
Products. The Licensor Marks may never be used on or in connection with any
other products or services, and, particularly not on novelty items or T-shirts,
without express written permission of the Licensor.
2.2 The Licensor Marks may not be used as part of or in any emblem or insignia
2.3 The Licensor Marks must not be used in a manner which may cause confusion
as to the source or origin of products or services being offered. As such, the
Licensor Marks may not be:
2.3.1 displayed in a striking and solitary manner by Creative;
2.3.2 made more prominent than the remainder of the text in which the
Licensor Marks are used by Creative;
2.3.3 as prominent or more prominent than the trademark or company name
of Creative;
2.3.4 used as part of the name or other identifier of a business,
product, or service not connected with the Licensed Products.
2.4 At the first or a prominent occurrence of the Licensor Marks in
advertising, it should be symbolically indicated that the Licensor Marks are
trademarks. In the United States, this usually done by using the symbol(TM) or
(R) with same footnote. Note that in some countries, a translated version of the
U.S. trademark attribution is not only used,
vii CONFIDENTIAL
<PAGE>
but may be required. You should check with your legal department to insure that
local laws and customs are adhered to and followed.
2.5 Licensor will provide to Creative camera-ready artwork of the Licensor
Marks. Creative may not alter this artwork in any way whatsoever.
2.6 Creative may only reproduce the Licensor Marks in accordance with the
instructions included on the camera-ready artwork which will be provided by
Licensor to Creative. The Licensor Marks artwork may not be recreated in any
way. Creative may re-size the Licensor Marks using photographic proportional
processes.
2.7 Creative agrees not to use any other trademark, service mark or tradename
in combination with the Licensor Marks without prior written approval of
Licensor. A minimum border must be placed around the Licensor Marks equal to one
half of the Licensor Marks' largest dimension.
2.8 Licensor may conduct spot checks of the Licensed Products and advertising
and will periodically (but no more than twice a year) send out requests for
samples to monitor compliance with the Agreement and these Guidelines.
2.9 Creative must correct any deficiencies in their use of the Licensor Marks
on the Licensed Products or in advertising, and cease and desist from further
publication or distribution of the offending materials upon reasonable notice
from Licensor.
2.10 Advertising Claims - The accuracy and appropriateness of all claims used
in Creative's advertising or promotional materials which includes the Licensor
Marks is the sole responsibility of Creative, even if Licensor is aware of the
advertisement or promotional materials.
viii CONFIDENTIAL
<PAGE>
EXHIBIT E
ESCROW AGREEMENT
----------------
Account Number_________________
This Escrow Agreement ("ESCROW AGREEMENT") is effective as of_________________
1996, among Data Securities International, Inc. ("DSI"), NetSpeak,
Corp.("DEPOSITOR"), and Creative Technology, Ltd. ("PREFERRED BENEFICIARY"),
which may collectively be referred to in this Escrow Agreement as "THE PARTIES".
A. Depositor and Preferred Beneficiary have entered or will enter into a
Technology License and Development Agreement (referred to in this Escrow
Agreement as the "LICENSE AGREEMENT") regarding certain proprietary technology
of Depositor, including Source Code (as defined in the License Agreement) and
related Documentation (as defined in the License Agreement) of Depositor
(collectively, the "PROPRIETARY TECHNOLOGY").
B. Depositor desires to avoid access to its Proprietary Technology except under
certain limited circumstances.
C. The availability of the Depositor's Proprietary Technology is critical to
Preferred Beneficiary in the conduct of its business and, therefore, Preferred
Beneficiary needs access to the Proprietary Technology under certain limited
circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with DSI to
provide for the retention, administration and controlled access of the
Proprietary Technology materials of Depositor.
E. The parties desire this Escrow Agreement to be supplementary to the License
Agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
ARTICLE 1 - DEPOSITS
1.1 OBLIGATION TO MAKE DEPOSIT Upon receipt by Licensor of payment by Creative
to Licensor of the Unlimited Use fee (Section 10.1 of the License Agreement) and
Advance fee (Section 10.2 of the License Agreement), Depositor shall deliver to
DSI the Proprietary Information and other materials ("DEPOSIT MATERIALS")
required to be deposited by the License Agreement or, if the License Agreement
does not identify the materials to be deposited with DSI, then such materials
will be identified on an ATTACHMENT A. If ATTACHMENT A is applicable, it is to
be prepared and signed by Depositor and Preferred Beneficiary. DSI shall have no
obligation with respect to the preparation, signing or delivery of ATTACHMENT A.
ix CONFIDENTIAL
<PAGE>
1.2 IDENTIFICATION OF TANGIBLE MEDIA Prior to the delivery of the Deposit
Materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the Deposit
Materials are written or stored. Additionally, Depositor shall complete
ATTACHMENT B to this Escrow Agreement by listing each such tangible media by the
item label description, the type of media and the quantity. ATTACHMENT B must be
signed by Depositor and delivered to DSI with the Deposit Materials. Unless and
until Depositor makes the initial deposit with DSI, DSI shall have no obligation
with respect to this Escrow Agreement, except the obligation to notify the
parties regarding the status of the deposit account as required in Section 2.2
below.
1.3 DEPOSIT INSPECTION When DSI receives the Deposit Materials and ATTACHMENT
B, DSI will conduct a deposit inspection by visually matching the labeling of
the tangible media containing the Deposit Materials to the item descriptions and
quantity listed on ATTACHMENT B. In addition to the deposit inspection,
Preferred Beneficiary may elect to cause a verification of the Deposit Materials
in accordance with Section 1.6 below.
1.4 ACCEPTANCE OF DEPOSIT At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item descriptions
and quantity on ATTACHMENT B, DSI will date and sign ATTACHMENT B and mail a
copy thereof to Depositor and Preferred Beneficiary. If DSI determines that the
labeling does not match the item descriptions or quantity on Exhibit B, DSI
will: (a) note the discrepancies in writing on ATTACHMENT B; (b) date and sign
EXHIBIT B with the exceptions noted; and (c) provide a copy of ATTACHMENT B to
Depositor and Preferred Beneficiary. DSI's acceptance of the deposit occurs
upon the signing of ATTACHMENT B by DSI. Delivery of the signed ATTACHMENT B to
Preferred Beneficiary is Preferred Beneficiary's notice that the Deposit
Materials have been received and accepted by DSI.
1.5 DEPOSITOR'S REPRESENTATIONS. Depositor represents as follows:
a. Depositor lawfully possesses all of the Deposit Materials deposited
with DSI;
b. With respect to all of the Deposit Materials, Depositor has the
right and authority to grant to DSI the rights as provided in this
Escrow Agreement;
c. The Deposit Materials are not subject to any lien or other
encumbrance; and
d. The Deposit Materials consist of the Proprietary Technology and
other materials identified either in the License Agreement or
ATTTACHMENT A, as the case may be.
1.6 VERIFICATION Preferred Beneficiary shall have the right, at Preferred
Beneficiary's expense, to cause a verification of any Deposit Materials. A
verficiation determines, in different levels of detail, the accuracy,
completeness, sufficiency and quality of the
x CONFIDENTAL
<PAGE>
Deposit Materials. If a verification is elected after the Deposit Materials have
been delivered to DSI, then only DSI, or at DSI's election an independent person
or company selected and supervised by DSI, may perform the verification;
PROVIDED, HOWEVER, that such independent person or company shall not be the
Preferred Beneficiary.
1.7 DEPOSIT UPDATES Unless otherwise provided by the License Agreement,
Depositor shall update the Deposit Materials within sixty (60) days of each
release of a new version of the product which is subject to the License
Agreement, but no more than once a quarter. Such updates will be added to the
existing deposit. All deposit updates shall be listed on a new EXHIBIT B and the
new EXHIBIT B shall be signed by Depositor. Each Exhibit B will be held and
maintained separately within the escrow account. An independent record will be
created which will document the activity for each EXHIBIT B. The processing of
all deposit upgrades shall be in accordance with Sections 1.2 through 1.6 above.
All references in this Escrow Agreement to the Deposit Materials shall include
initial Deposit Materials and any updates.
1.8 REMOVAL OF DEPOSIT MATERIALS The Deposit Materials may be removed and/or
exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Escrow Agreement.
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 CONFIDENTIALITY DSI shall maintain the Deposit Materials in a secure,
environmentally safe, locked receptacle which is accessible only to authorized
employees of DSI. DSI shall have the obligation to reasonably protect the
confidentiality of the Deposit Materials. Except as provided in this Escrow
Agreement, DSI shall not disclose, transfer, make available, or use the Deposit
Materials. DSI shall not disclose the content of this Escrow Agreement to any
third party. If DSI receives a subpoena or other order of a court or other
judicial tribunal to the disclosure or release of the Deposit Materials, DSI
will immediately notify the parties to this Escrow Agreement. It shall be the
responsibility of the Depositor and/or Preferred Beneficiary to challenge any
such order; provided, however, that DSI does not wave its rights to present its
position with respect to any such order. DSI will not be required to disobey any
court or other judicial tribunal order. (See Section 7.5 below for notices of
requested orders.)
2.2 STATUS REPORTS DSI will issue to Depositor and Preferred Beneficiary a
report profiling the account history at least semi-annually. DSI shall provide
copies of the account history pertaining to this Escrow Agreement upon the
request of any party to this Escrow Agreement.
2.3 AUDIT RIGHTS During the term of this Escrow Agreement, Depositor and
Preferred Beneficiary shall each have the right to inspect the written records
of DSI pertaining to this Escrow Agreement. Any inspection shall be held during
normal business hours and following reasonable prior notice.
xi CONFIDENTIAL
<PAGE>
ARTICLE 3 - GRANT OF RIGHTS TO DSI
3.1 TITLE TO MEDIA Depositor hereby transfers to DSI the title to the media upon
which the Proprietary Technology and materials are written or stored. However,
this transfer does not include the ownership of the Proprietary Technology and
materials contained on the media such as any copyright, trade secret, patent or
other intellectual property rights.
3.2 RIGHT TO MAKE COPIES DSI shall have the right to make copies of the Deposit
Materials as reasonably necessary to perform this Escrow Agreement. DSI shall
copy all copyright, nondisclosure, and other proprietary notices and titles
contained on the Deposit Materials onto any copies made by DSI. With all Deposit
Material submitted to DSI, Depositor shall provide any and all instructions as
may be necessary to duplicate the Deposit Materials including but not limited to
the hardware and/or software needed.
ARTICLE 4 - RELEASE OF DEPOSIT
4.1 RELEASE CONDITIONS As used in this Escrow Agreement, "RELEASE CONDITIONS"
shall mean the conditions set forth in Section 16.0 of the License Agreement.
4.2 FILING FOR RELEASE. If Preferred Beneficiary believes in good faith that a
Release Condition has occurred, Preferred Beneficiary may provide to DSI
written notice of the occurrence of the Release Condition and a request for the
release of the Deposit Materials. DSI shall immediately deliver a copy of such
notice to Depositor. No earlier than five (5) days and no later than 5:00 p.m.
Pacific Time on the date which is ten (10) days after DSI's receipt of such
notice, provided that DSI has not received a copy of a court order restraining
release of the Deposit Materials, DSI shall deliver the Deposit Materials to
Preferred Beneficiary, even if Depositor disputes the fact that Preferred
Beneficiary is entitled to the Deposit Materials. If it is subsequently
determined a Release Condition has not occurred, Preferred Beneficiary shall
immediately return all copies of Deposit Materials in its possession or control
to DSI and shall be liable for any expenses incurred by Depositor in
demonstrating that no Release Condition had occurred.
4.3 USE LICENSE FOLLOWING RELEASE Preferred Beneficiary's rights to the Deposit
Materials following release of such materials by DSI are set forth in Section
16.0 of the License Agreement.
4.4 RETURN OF DEPOSIT MATERIALS Upon Depositor's cure of any default or
cessation of any Release Condition under Section 4.1, Preferred Beneficiary
shall promptly return all copies of Deposit Materials in its possession or
control to DSL.
xii CONFIDENTIAL
<PAGE>
ARTICLE 5 - TERM AND TERMINATION
5.1 TERM OF AGREEMENT This Escrow Agreement shall be in effect for as long as
the License Agreement is in effect, unless Depositor and Preferred Beneficiary
jointly instruct DSI in writing that the Escrow Agreement is terminated earlier.
Should the License Agreement expire or be terminated by Depositor based on
Preferred Beneficiary's uncured material breach, this Escrow Agreement shall
also be terminated and DSI shall destroy, return, or otherwise deliver the
Deposit Materials in accordance with Depositor's instructions. Should the
License Agreement be terminated by Preferred Beneficiary due to Depositor's
uncured material breach, this Escrow Agreement shall continue for the sole
purpose of assuring Preferred Beneficiary's right of access to the Deposit
Materials as set forth in Section 16 of the License Agreement.
5.2 NOTICE FROM DEPOSITOR In the event that the License Agreement expires or is
terminated by Depositor due to Preferred Beneficiary's material breach,
Depositor shall notify DSI in writing and shall provide a copy of such notice to
Preferred Beneficiary. Before returning the Deposit Materials to Depositor, DSI
shall verify with Preferred Beneficiary that the License Agreement has expired
or been terminated and that the Deposit Materials may be returned to Depositor.
5.3 TERMINATION FOR NONPAYMENT In the event of the nonpayment of fees owed to
DSI, DSI shall provide written notice of delinquency to all parties to this
Escrow Agreement. Any party to this Escrow Agreement shall have the right to
make the payment to DSI to cure the default. If the past due payment is not
received in full by DSI within one month of the date of such notice, then DSI
shall have the right to terminate this Escrow Agreement at any time thereafter
by sending written notice of termination to all parties. Upon termination for
nonpayment, DSI may, at its sole discretion, destroy the Deposit Materials or
return them to Depositor. DSI shall have no obligation to take any action under
this Escrow Agreement so long as any payment due to DSI remains unpaid.
5.4 SURVIVAL OF TERMS FOLLOWING TERMINATION Upon termination of this Escrow
Agreement, the following provision of this Escrow Agreement shall survive:
a. Depositor's representations (Section 1.5);
b. the obligations of confidentiality with respect to the Deposit Materials;
c. Preferred Beneficiaries' obligation to pay DSI any fees and expenses due;
d. the provisions of Article 7; and
e. any provisions in this Escrow Agreement which specifically state they
survive the termination or expiration of this Escrow Agreement.
xii CONFIDENTIAL
<PAGE>
ARTICLE 6--DSI'S FEES
6.1 FEE SCHEDULE DSI is entitled to be paid its standard fees and expenses
applicable to the services provided. DSI shall notify Preferred Beneficiary, as
the party responsible for paying DSI's fees hereunder, at least ninety (90) days
prior to any increase in fees. For any service not listed on DSI's standard fee
schedule, DSI will provide a quote prior to rendering the service, if requested.
6.2 PAYMENT TERMS DSI shall not be required to perform any service unless the
payment for such service and any outstanding balance owed to DSI are paid in
full. All other fees are due upon receipt of invoice. If invoiced fees are not
paid, DSI may terminate this Escrow Agreement in accordance with Section 5.3.
Late fees on past due amounts shall accrue at the rate of one and one-half
percent per month (18% per annum) from the date of the invoice.
ARTICLE 7--LIABILITY AND DISPUTES
7.1 RIGHT TO RELY ON INSTRUCTIONS DSI may act in reliance upon any request for
release of the Deposit Materials which: a) is presented on Preferred
Beneficiary's letterhead; b) specifically refers to the Release Condition under
which the Preferred Beneficiary believes it is entitled to the Deposit
Materials; c) identifies the date on which Preferred Beneficiary believes the
Release Condition has occurred; and d) is signed by a corporate officer of the
Preferred Beneficiary.
7.2 INDEMNIFICATION DSI shall be responsible to perform its obligations under
this Escrow Agreement and to act in a reasonable and prudent manner with regard
to this escrow arrangement. Provided DSI has acted in the manner stated in the
preceding sentence, Depositor and Preferred Beneficiary each agree to indemnify,
defend and hold harmless DSI from any and all claims, actions, damages,
arbitration fees and expenses, costs, attorney's fees and other liabilities
incurred by DSI relating in any way to this escrow arrangement.
7.3 DISPUTE RESOLUTION Any dispute relating to or arising from this Escrow
Agreement shall be resolved by arbitration under the Commercial Rules of the
American Arbitration Association. Unless otherwise agreed by Depositor and
Preferred Beneficiary, arbitration will take place in San Francisco, California,
U.S.A. Any court having jurisdiction over the matter may enter judgment on the
award of the arbitrator(s). Service of a petition to confirm the arbitration
award may be made by First Class mail or by commercial express mail, to the
attorney for the party or, if unrepresented, to the party at the last known
business address.
7. CONTROLLING LAW This Escrow Agreement is to be governed and construed in
accordance with the laws of the State of California, without regard to its
conflict of law provisions.
xiv CONFIDENTIAL
<PAGE>
7.5 NOTICE OF REQUESTED ORDER If any party intends to obtain an order from the
arbitrator or any court of competent jurisdiction which may direct DSI to take,
or refrain from taking any action, that party shall:
a. Give DSI at least two business days prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's obligation,
DSI be paid in full for any past due fees and be paid for the reasonable
value of the services to be rendered pursuant to such order; and
c. Ensure that DSI not be required to deliver the original (as opposed to a
copy) of the Deposit Materials if DSI may need to retain the original in
its possession to fulfill any of its other duties.
ARTICLE 8--GENERAL PROVISIONS
8.1 ENTIRE AGREEMENT This Escrow Agreement, which includes the Exhibits
described herein, embodies the entire understanding among the parties with
respect to its subject matter and supersedes all previous communications,
representations or understandings, either oral or written. No amendment or
modification of this Escrow Agreement shall be valid or binding unless signed by
all the parties hereto, except that ATTACHMENT A need not be signed by DSI,
Exhibit B need not be signed by Preferred Beneficiary and Exhibit C need not be
signed.
8.2 NOTICES All notices, invoices, payments, deposits and other documents and
communications shall be given to the parties at the addresses specified in the
attached Exhibit C. It shall be the responsibility of the parties to notify each
other as provided in this Section in the event of a change of address. The
parties shall have the right to rely on the last known address of the other
parties. Unless otherwise provided in this Escrow Agreement, all documents and
communications may be delivered by First Class mail.
8.3 ATTORNEYS FEES In the event any suit, action, arbitration or other legal
proceeding arising from or based on this Escrow Agreement is instituted between
Depositor and Preferred Beneficiary, the prevailing party shall be entitled to
recover its reasonable attorneys' fees, costs and disbursements, including,
without limitation, any fees, costs and disbursements incurred on appeal or
incurred in enforcing or collecting any resulting judgment.
8.4 SEVERABILITY In the event any provision of this Escrow Agreement is found to
be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Escrow Agreement, such
invalidity, voidability or unenforceability shall affect neither the validity of
this Escrow Agreement nor the provisions herein, and the provisions in question
shall be deemed to be replaced with a valid and enforceable provision most
closely reflecting the intent and purpose of the original provision.
xv CONFIDENTIAL
<PAGE>
8.5 SUCCESSORS This Escrow Agreement shall be binding upon and shall inure to
the benefit of the successors and assigns of the parties. However, DSI shall
have no obligation in performing this Escrow Agreement to recognize any
successor or assign of Depositor or Preferred Beneficiary unless DSI receives
clear, authoritative and conclusive written evidence of the change of parties.
____________________________ ___________________________
Depositor Preferred Beneficiary
By:_________________________ By:________________________
Name:_______________________ Name:______________________
Title:______________________ Title:_____________________
Date:_______________________ Date:______________________
Data Securities Inc.
By:__________________________
Name:________________________
Title:_______________________
Date:________________________
xvi CONFIDENTIAL
<PAGE>
ATTACHMENT A
Account Number_____________________
Depositor represents to Preferred Beneficiary that Deposit Materials delivered
to DSI shall consist of the following:
[OPEN ISSUE FOR BOTH PARTIES]
______________________________ ______________________________
Depositor Preferred Beneficiary
By:___________________________ By:___________________________
Name:_________________________ Name:_________________________
Title:________________________ Title:________________________
Date:_________________________ Date:_________________________
xvii CONFIDENTIAL
<PAGE>
EXHIBIT F
COPIES OF EXISTING LICENSOR AGREEMENTS
*
<PAGE>
EXHIBIT G
CRITICAL TERRITORIES
<PAGE>
FIRST AMENDMENT TO THE
JUNE 7, 1996 TECHNOLOGY LICENSE AND DEVELOPMENT AGREEMENT
BETWEEN
CREATIVE TECHNOLOGY LTD.
and NETSPEAK CORPORATION
This FIRST AMENDMENT (the "FIRST AMENDMENT") is made as of this 6th day
of December, 1996 (the "AMENDMENT EFFECTIVE DATE"), by and between: CREATIVE
TECHNOLOGY LTD. ("CREATIVE"), a Singapore corporation having a principal office
at 67 Ayer Rajah Crescent #03-18, Republic of Singapore 139950; and NETSPEAK
CORPORATION ("LICENSOR"), a Florida corporation having a principal office at 902
Clint Moore Road, Boca Raton, Florida 33407.
WHEREAS, CREATIVE desires Licensor to extend the license terms and
perform Custom Engineering Services, as set forth in Section 5.2 of the
TECHNOLOGY LICENSE AND DEVELOPMENT AGREEMENT (the "MASTER AGREEMENT"), effective
as of June 7, 1996, by and between CREATIVE and Licensor;
WHEREAS, the parties desire that this First Amendment amend that Master
Agreement, as stated below; and
WHEREAS, the parties intend to further their relationship;
NOW THEREFORE, for additional consideration recited herein and
acknowledge by the parties hereto, the parties agree to the following amendments
to the Master Agreement:
1. DEFINITIONS. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to them in the Master Agreement.
"ADJUSTED GROSS REVENUE" shall mean gross revenue received by CREATIVE
from sales of the applicable product or services, less discounts, returns, and
fees paid to banking establishments solely related to conducting credit card or
debit card transactions.
"AFFILIATES" shall be amended in the Master Agreement such that the
term "control" means, collectively: (i) ownership of more than * of the voting
stock of the entity, or in the case of a non-corporate or non-public entity, an
equivalent ownership interest; and (ii) the Future Subsidiary.
"CLIENT/SERVER DERIVATIVE WORKS" shall mean technology, including any
Intellectual Property Rights contained therein, that is derived from or based on
Licensor Specifications, Licensor Technology, whether such technology is
developed by CREATIVE or Licensor, either solely or jointly including those
products listed in EXHIBIT G attached hereto.
*Confidential portions omitted and filed separately with the Commission.
-1-
<PAGE>
"CLIENT/SERVICE DERIVATIVE WORKS SPECIFICATIONS" shall mean jointly
owned written design documents jointly created by the parties and based on
Licensor Specifications for Client/Server Derivative Works.
"CREATIVE APPLICATIONS" shall mean those software applications
developed by CREATIVE, either alone or jointly with Licensor, based upon
CREATIVE Video Technology, other CREATIVE technology, technology licensed by
CREATIVE from third parties, Client/Server Derivative Works, or Licensor
Technology, and as described in EXHIBIT D attached hereto, as such may be
amended by mutual agreement of the parties, which agreement shall not
unreasonably be withheld.
"CREATIVE *" shall mean the CREATIVE client server
TCP/IP-based communications content and services network system, developed by or
for CREATIVE or its Affiliates, and including, without limitations, * .
"CREATIVE IMPROVEMENT" shall mean any improvement, enhancement, or
other modification that either: (a) adds new functionality to the Client/Server
Derivative Works made by or for CREATIVE after Version 1.0 of the Client/Server
Derivative Works is finally tested pursuant to this Agreement or (b) is reduced
to practice by or for CREATIVE after version 1.0 or the Client/Server Derivative
Works is finally tested pursuant to this Agreement.
"CREATIVE SERVER MODULES" shall mean the object code version of the
server components of the Client/Server Derivative Works, used on the CREATIVE
*, as defined in the Client/Server Derivative Works Specifications.
"CREATIVE TECHNOLOGY" shall mean the technology developed solely by
CREATIVE, or its licensee or agents, including, without limitation, the products
described in EXHIBIT F attached hereto, which exhibit may be modified by
CREATIVE from time to time.
"CREATIVE VIDEO TECHNOLOGY" shall mean that video compression
technology developed and owned by CREATIVE prior to the Amendment Effective
Date, including any Intellectual Property Rights contained herein, and any
subsequent Upgrades (as defined in the Master Agreement) thereto, providing the
functionality described in EXHIBIT A attached hereto, and that forms the core
video technology from which the Restricted Video WebPhone and Full Video
WebPhone products are derived.
"FIRST AMENDMENT TERM" shall mean the term set forth in Section 6.1 of
this First Amendment.
"FULL VIDEO WEBPHONE" shall mean the client-based audio/video
communication software derived or based upon CREATIVE Video Technology and the
WebPhone Technology and developed by CREATIVE and Licensor under this First
Amendment and that has full functionality, as described in EXHIBIT B attached
hereto, and that integrates, incorporates, or includes the CREATIVE Graphical
User Interface (as that term is defined in the Master Agreement).
*Confidential portions omitted and filed separately with the Commission.
-2-
<PAGE>
"FUTURE SUBSIDIARY" shall mean one (1) entity; (i) that CREATIVE
controls at least * of the voting stock or, or in the case of a non-corporate
entity, an equivalent interest: (ii) that has the responsibility for maintaining
and operating the CREATIVE * ; and (iii) in which none of Licensor's Excepted
Companies, as listed in EXHIBIT H attached hereto, which list may be modified
from time upon mutual agreement of the parities, shall have any interest, unless
specifically agreed upon by Licensor.
"GOLDEN MASTER" shall be amended to include reference to Notebook and
Server Products.
"INTERNET TELEPHONY SERVICE" shall mean any computer network based
telephone service for use with public or private communication networks, the
primary purpose of which computer network is to provide telephone directory,
telephone connection, or telephone information services over communication
networks.
"LICENSOR APPLICATIONS" shall mean those software applications
developed by Licensor, either alone or jointly with CREATIVE, based upon
Licensor Technology, other Licensor technology, technology licensed by Licensor
from third parties, Client/erver Derivative Works, or WebPhone Technology, and
as described in EXHIBIT D attached herto,a s such may be amended by mutual
agreement of the parties, which agreement shall not unreasonably be held.
"LICENSOR CLIENT MODULES" shall mean the source code version of the
WebPhone Technology, including without limitation, those components set forth in
EXHIBIT C attached hereto, as such exhibit may be mutually agreed by the parties
from time to time.
"LICENSOR IMPROVEMENT" shall mean any improvement, enhancement, or
other modification that either: (a) adds new functionality to the Client Server
Derivative Works made by or for Licensor after version 1.0of the Client/Server
Derivative Works is finally tested pursuant to this Agreement; or (b) is reduced
to practice by or for Licensor after version 1.0 of the Client/Server Derivative
Works is finally tested pursuant to this Agreement.
"LICENSOR SERVER MODULES" shall mean the source code versions of
Licensor's * when available, and bug fixes, as described in EXHIBIT C attached
hereto.
"LICENSOR SPECIFICATIONS" shall mean the written design documents
initially created by Licensor for Client/Server Derivative Works, which are
reviewed and approved by CREATIVE.
"LICENSOR TECHNOLOGY" shall include Licensor Modules, Licensor Server
Modules, and any bug fixes, patches, and minor corrections thereof.
"LICENSOR * shall mean the object code version of the client function
of the Client/Server Derivative Works distributed alone or incorporated into
CREATIVE Applications, as set forth in EXHIBIT G attached hereto.
*Confidential portions omitted and filed separately with the Commission.
-3-
<PAGE>
"LICENSOR * shall mean the object code version of the client
function of the Client/Server Derivative Works for incorporation into a
*, as set forth in EXHIBIT G attached hereto.
"Licensor Video WebPhone" shall mean, collectively, the Restricted
Video WebPhone and Full Video WebPhone that does not integrate, incorporate, or
include the CREATIVE Graphical User Interface (as that term is defined in the
Master Agreement).
"NOTEBOOK" shall mean the object code version of the client
collaborative application software owned by Licensor, and described in further
detail in EXHIBIT E attached hereto, together with all Upgrades and Updates
thereto.
"RESTRICTED PRODUCTS" shall mean Restricted WebPhone and Restricted
Video WebPhone, which definition shall replace the definition of such term in
the Master Agreement.
"RESTRICTED VIDEO WEBPHONE" shall mean the client-based audio/video
communication software derived or based upon CREATIVE Video Technology and
WebPhone Technology and developed by CREATIVE and Licensor under this First
Amendment and that has limited or restricted functionality, as described in
EXHIBIT B attached herteo, and that integrates, incorporates, or includes the
"CREATIVE Graphical User Interface (as that term is defined in the Master
Agreement).
"REVISED TERM" shall mean the period * .
"SERVER PRODUCTS" shall mean * and * owned by Licensor, and as
described in further detail in EXHIBIT E attached hereto, together with all
Upgrades and Updates thereto.
"UPGRADE REVENUE" shall mean all amounts received by Licensor from End
Users of the Restricted Video WebPhone purchased from CREATIVE, who subscribed
to or otherwise purchase or upgrade to the Full Video WebPhone, less any
discounts, and credits for returned copies or copies distributed as replacements
for defectives copies, and fees paid to banking establishments solely related to
conducting credit card transactions.
"VIDEO WEBPHONE" shall mean, collectively, the Restricted Video
WebPhone and Full Video WebPhone.
"VIDEO WEBPHONE REVNUE" shall mean all amount received by CREATIVE from
End Users of the Full Video WebPhone purchased directly from CREATIVE via
CREATIVE's web site on the Internet or via retail and OEM distribution channels,
less any discounts, and credits for returned copies or copies distributed as
replacements for defective copies, and less any fees paid to banking
establishments solely related to conducting credit card transactions.
"WAPI" shall mean the application program interface that allows parties
or co-developers to develop software that interacts with the Client/Server
Derivative Works.
*Confidential portions omitted and filed separately with the Commission.
-4-
<PAGE>
"WebPhone" shall mean any process which implements a material part of
the WAPI in a manner that provides Internet telephony that set forth in the
Client/Server Derivative Works Specifications.
2. GRANT.
2.1 CREATIVE GRANT TO LICENSOR. Subject to the terms and conditions of
the First Amendment, and for the Revised Term, CREATIVE hereby grants to
Licensor a non-transferable, non-exclusive, world-wide, * right and license
(with a right to sub-license pursuant to Section 2.2 hereto) to:
(i) use, reproduce, have reproduced, modify and create Derivative
Works of the source code version of the CREATIVE Video
Technology solely for porting to different operating system
environments ("PORTED CREATIVE VIDEO TECHNOLOGY"). Including
but not limited to Macintosh-, UNIX-, and Window NT-based
operating systems:
(ii) use, reproduce, modify, and create Derivative Works from the
object code version of the CREATIVE Video Technology and
Ported CREATIVE Video Technology solely for purposes of
incorporating into the Licensor Video WebPhone and Licensor
Applications pursuant to the terms and conditions of this
First Amendment; and
(iii) use, have used, execute, display, reproduce, have reproduced,
manufacture, have manufactured, market, sell, import, export,
licensed, sublicense, lease, transfer and otherwise distribute
and have distributed the object code version of the CREATIVE
Video Technology and Ported CREATIVE Video Technology solely
as incorporated into the Licensor Video WebPhone and Licensor
Applications.
Licensor grants to CREATIVE a non-transferable, non-exclusive, world-wide,
perpetual, * right and license (with a right to sublicense pursuant to Section
2.2 hereto) to use, reproduce, have reproduced, manufacture, have manufactured,
modify, and create Derivative Works from, market, sell, import, export, and
distribute the object code and source code versions of the Ported CREATIVE Video
Technology.
2.2 SUBLICENSE RIGHT. Licensor may sublicense its rights and license
under this First Amendment only its Affiliates; PROVIDED, HOWEVER, that such
Affiliates are subject to the same terms and conditions as Licensor under this
First Amendment.
2.3 LICENSOR GRANT TO CREATIVE. Subject to the terms and conditions of
this First Amendment, including without limitation Section 3.9 and 6.4 hereto
and for the First Amendment Term, in addition to the rights and licenses granted
in the Master Agreement, Licensor hereby grants to CREATIVE, subject to the
restriction set forth in Section 5.5 hereto, a non-transferable, non-exclusive,
world-wide right and license to:
*Confidential portions omitted and filed separately with the Commission.
-5-
<PAGE>
(i) use, reproduce, and modify the source code version of the
Licensor Technology solely for the purposes of developing
Client/Server Derivative Works for incorporation into CREATIVE
Applications, CREATIVE Improvements, and the CREATIVE * ,
including without limitation, incorporating or otherwise
combining CREATIVE Technology with Client/Server Derivative
Works to develop and maintain products, including without
limitation, CREATIVE Applications and the CREATIVE * ;
(ii) manufacture, have manufactured, sublicense, reproduce, have
reproduced, market, have marketed, import, expert, use, sell,
have sold, and otherwise distribute and have distributed the
object code version of the Licensor Client modules, Licensor
* , and Licensor * , solely for the purpose of manufacturing,
having manufactured, sublicensing, reproduction, having
reproduced, marketing, having marketed, importing, exporting,
using, selling, having sold, and otherwise distributing and
having distributed Client/Server Derivative Works, CREATIVE
Improvements, CREATIVE Applications; PROVIDED, HOWEVER, that
nothing herein shall be construed as granting any rights to
CREATIVE to include the WebPhone in the Client/Server
Derivative Works, CREATIVE Improvements, or CREATIVE
Applications; PROVIDED FURTHER, that nothing herein grants to
CREATIVE any right to sell, have sold, distribute, or have
distributed the Licensor Client Modules as stand-alone
products; and
(iii) manufacture, have manufactured, reproduce, have reproduced,
market, have marketed, import, export, and use the object code
version of the Licensor Server Modules, only as integrated
into the CREATIVE Server Modules, solely for the purposes of
maintaining the CREATIVE Broadcast Network.
PROVIDED, HOWEVER, that any and all use of the source code version of the
Licensor Client Modules and Licensor Server Modules under Subsection 2.3 (i)
occurs pursuant to the provisions of Section 4.4 hereto.
As a matter of clarification, CREATIVE acknowledges that it has no
right to sell, have sold, license, sublicense, or otherwise distribute Licensor
Server modules and CREATIVE Server Modules, partially or in their entity, to any
third party; provided, however, that nothing herein shall prevent CREATIVE from
distributing the object code version of CREATIVE Server Modules to CREATIVE's
subcontractors or other agents for the sole purpose of maintaining and/or
operating the CREATIVE Broadcast Network.
2.4 NOTEBOOK. Subject to the terms and condition of his First
Amendment, Licensor hereby grants to CREATIVE a non-transferable, non-exclusive,
world-wide right and license (with a right to sublicense pursuant to Section 2.2
hereto) to use, reproduce, have reproduced,
*Confidential portions omitted and filed separately with the Commission.
-6-
<PAGE>
manufacture have manufactured, modify or have modified, market, have marketed,
sell, have sold, import, export, distribute and have distributed from the Golden
Master, copies of Notebook.
2.5 SERVER PRODUCTS. Subject to the terms and conditions of this First
Amendment, Licensor hereby grants to CREATIVE a non-transferable, non-exclusive,
world-wide right and license (with a right to sublicense pursuant to Section 2.2
hereto) to (i) use the Server Products internally in conjunction with the
CREATIVE * ; and (ii) to make such copies from the Golden Master of the server
Products as reasonably necessary to operate and maintain the CREATIVE * , which
the parties currently contemplate will be no more than five (5) copies.
2.6 PODIUM. Subject to the terms and conditions of this First
Amendment, Licensor ] hereby grant to CREATIVE, a non-transferable,
non-exclusive, world-wide right and license (with a right to sublicense pursuant
to Section 2.2 hereto) to: use, reproduce, and distribute internally only within
CREATIVE, with no rights or license to externally distribute the Podium, in any
form.
2.7 IMPROVEMENTS. Each of CREATIVE and Licensor may independently
develop CREATIVE Improvements and Licensor Improvements, respectively. The
parties agree that base compatibility shall be maintained pursuant to the
provisions of Section 5.6 hereto, and subject to the ownership provisions of
Section 4.3 hereto, so that at least the baseline functions mutually agreed upon
in writing by the parties (as such may be changed from time to time if the
parties mutually agree) can run on each parties' products. Both parties agree to
enter into good faith negotiations regarding licensing of such CREATIVE
Improvements and Licensor Improvements.
3. LICENSE FEES.
3.1 AMENDMENT TO UNLIMITED USE FEE. In partial consideration for the
rights granted by CREATIVE to Licensor under this First Amendment, the parties
hereto agree that the * set forth in Section 10.1 of the Master Agreement
extends to all Restricted Products, including those developed pursuant to this
First Amendment and as that Term is defined in this First Amendment. However,
any future cedes or new functionality integrated into the Restricted Products
which incurs a royalty to Licensor will be offered to CREATIVE as an option to
be included into the Restricted Products at an additional cost to CREATIVE, with
no gain or loss to Licensor.
3.2 AMENDMENT TO PER COPY FEES. In partial consideration for the rights
granted by CREATIVE under this First Amendment, the parties hereto agree to
amend Section 10.2 of the Master Agreement to reflect that CREATIVE shall pay to
Licensor, during the Activated Product Term a per copy fee of * (*) per copy of
each Activated Product sold or distributed by CREATIVE via non-Internet based
distribution channels. The per-copy fee defined in this Section 3.2 includes all
existing codes in the Activated Product, and also includes future compatibility
with the * standard. Any future codes or new functionality integrated into the
Licensed Products or Video WebPhone which incurs a royalty to Licensor will be
offered to CREATIVE as an option to be included into the Licensed Products and
the Video WebPhone at a cost, with no gain or loss to Licensor, in addition to
the per-copy fee defined in this Section 3.2.
*Confidential portions omitted and filed separately with the Commission.
-7-
<PAGE>
3.3 VIDEO WEBPHONE FEES. In consideration for the Licenses granted
hereunder. CREATIVE shall pay to Licensor, during the First Amendment Term, a
per-copy fee of * (*) per copy of each Full Video WebPhone sold or distributed
by CREATIVE via non-Internet based distribution channels. The per-copy fee
defined in this Section 3.3 includes all existing codes in the Activated
Product, and also includes future compatibility with the H.323 standard. Any
future codes or new functionality integrated into the Licensed Products or Video
WebPhone which incurs a royalty to Licensor will be offered to CREATIVE as an
option to be included into the Licensed Products and the Video WebPhone at a
cost, with no gain or loss to Licensor, in addition to the per-copy fee defined
in this Section 3.3.
3.4 VIDEO WEBPHONE REVENUE SHARING. CREATIVE shall pay to Licensor
* (*) of the Video WebPhone Revenue received by CREATIVE from sales by
CREATIVE via the Internet. In addition, Licensor shall pay to CREATIVE * (*) of
the Upgrade Revenue received by Licensor during the Revised Term and for a
period of * thereafter.
3.5 LICENSOR SERVER MODULES AND LICENSOR CLIENT MODULES. In partial
consideration for the licenses granted pursuant to Section 2.3 hereto, CREATIVE
shall:
(i) pay to Licensor within five (5) days after the Amendment Effective
Date, a license fee of * (*) for the license granted pursuant to Section
2.3(iii) hereto , and a license fee of * (*) for the licenses granted in
Sections l2.3(i)-(ii); and
(ii) during the First Amendment Term and any applicable post-expiration
period pursuant to Section 6.4 hereto, pay to Licensor a quarterly royalty
payment equal to * (*) of Adjusted Gross Revenue received by CREATIVE based on
the sale of network services, including but not limited to content sales,
advertising, subscriptions and network use fees which utilize Licensor
Technology, Client/Server Derivative Works, Server Products, the Podium, or
Derivative Works thereof, in the CREATIVE * .
Payment under this Section 3.5 shall be made by CREATIVE within forty-five (45)
days after the end of each calendar quarter, together with a statement of
accounting for each such payment. The audit rights granted pursuant to Section
10.7 of the Master Agreement shall apply to the payments made under this Section
3.5
3.6 CREATIVE APPLICATIONS. Licensor acknowledges and agrees that the
license granted to CREATIVE to Licensor * pursuant to Section 2.3 is * , and is
granted in consideration for the rights and obligations of Licensor hereunder.
Regarding the license granted to CREATIVE to Licensor * pursuant to Section 2.3,
CREATIVE shall pay to Licensor a per unit fee of * per Licensor * sold by
CREATIVE, including without limitation, Licensor * sold as a stand-alone product
or as incorporated into CREATIVE Client Product, such Licensor * having a
maximum retail price below * (*); for Licensor * having maximum retail price
above * (*), the parties shall negotiate a separate higher per-unit fee. In
addition, CREATIVE shall pay to Licensor * (*) of the Adjusted Gross Revenue,
less the $* per unit fee recited in this
* Confidential portions omitted and filed separately with the Commission.
-8-
<PAGE>
Section 3.6, as applicable, from: (i) sales of the Licensor * purchased directly
from CREATIVE via CREATIVE's web site on the Internet; (ii) any and all upgrades
to the Licensor * distributed via Internet and non-Internet channels; and (iii)
any and all upgrades from Licensor * to Licensor * . In the event that CREATIVE
does not charge its customers for a Licensor * , then CREATIVE shall pay to
Licensor the per-unit fee.
3.7 * AND * . In partial consideration for the licenses granted
pursuant to Section 2.4 and 2.5 hereto, CREATIVE shall pay to Licensor; (i) a
license fee of * (*) for * (*) copies of the * , payable upon acceptance by
CREATIVE of the * , thereafter CREATIVE shall pay a per-copy price of * (*) for
each additional * distributed, sold or licensed by CREATIVE; and (ii) a license
fee for the * of * (*), payable upon acceptance by CREATIVE of the * accordance
with Section 4.7 hereto. In the event of non-acceptance by CREATIVE, CREATIVE
may, at is sole option, cancel any further obligations, including without
limitation payment obligations, with respect to the non-accepted * or * as
applicable.
3.8 NRE FEES. The parties hereto agree that, within ten (10) days after
the Amendment Effective Date, CREATIVE shall pay to Licensor the amount of
* (*) as payment in full for NRE performed by Licensor in connection with
developing server technology prior to the Amendment Effective Date and relating
to the rights granted hereunder. In addition, CREATIVE shall pay to Licensor
within ten (10) days the Amendment Effective Date, a second amount of * (*) as
payment in full for NRE performed by Licensor in connection with developing
client technology prior to the Amendment Effective Date and relating to the
rights granted hereunder.
3.9 LICENSE MAINTENANCE FEES: In partial consideration for the licenses
granted pursuant to Section 2.3 hereto. CREATIVE shall pay to Licensor an annual
license maintenance fee, in the amount of: (i) * *, payable in advance of each
of years 1 through 5 of this First Amendment; and (ii) * (*), payable in advance
of each of years 6 tough 10 of this First Amendment. Each license maintenance
fee paid this Section 3.9 shall be treated as a non-refundable pre-payment
against any and all fees paid or to be paid pursuant to section 3.5 (ii) hereto.
Licensor may terminate the licenses granted to CREATIVE pursuant to Section 2.3,
in the event that, within thirty (30) days after receipt by CREATIVE of a
written notice of failure to pay pursuant to this Section 3.9, CREATIVE fails to
make such maintain fee payment.
3.10 ROYALTY TO CREATIVE In partial consideration for CREATIVE's
efforts in developing the Client/Server Derivative Works hereunder, and so long
as CREATIVE pays the license maintenance fee set forth in Section 3.9., or
Section 6.4 if beyond the First Amendment Term, Licensor shall pay to CREATIVE a
quarterly royalty payment of * (*) of gross revenue (less discounts and returns)
receive by Licensor based on the sale of licensing of any Client/Server
Derivative Works.
* Confidential portions omitted and filed separately with the Commission.
-9-
<PAGE>
3.11 NON-DILUTION Any license fees and royalties payable to either part
to the other party pursuant to Sections 3.4, 3.5, 3.6, and 3.10 thereto shall
not be diluted by any revenue sharing activities or agreements in which the
other party participates or enters into with any Affiliates, agents,
contractors, subcontractors or other third parties.
4. PRODUCT DEVELOPMENT.
4.1 Video WebPhone Development and Ownership. The parties hereto agree
to use their commercially reasonable efforts to jointly develop a Video
Webphone, in compliance with the specifications set forth in EXHIBIT B attached
hereto. Except as set forth in Section 3.8, each party hereto shall solely be
responsible for any and all of its own costs incurred in such joint development
under this Section 4.1. The parties further agree to use commercially reasonable
efforts to jointly develop the scheduled Restricted Video WebPhone features.
Ownership shall generally be determined in accordance with the provisions set
forth in Section 6.0 of the Master Agreement; PROVIDED, HOWEVER, that any
Intellectual Property Rights conceived, developed or reduced to practice solely
by one party hereto relating to the Video WebPhone during the First Amendment
Term shall be owned solely by that party; PROVIDED, FURTHER, that ownership in
any Derivative Works of any CREATIVE Technology (except for any Licensor
Products/Technology, as that term is defined in Section 8.i6 hereto, that are
compiled, incorporated, or included with such Derivative Works) shall be owned
by CREATIVE; and PROVIDED, FURTHER, that ownership in any Client/Server
Derivative Works shall be determined in accordance with the provisions of
Section 4.3 hereto; and provided, further, that Licensor shall own all rights in
and to Licensor Technology and Licensor Improvements.
4.2 CREATIVE * DEVELOPMENT. The parties hereto agree to use their
commercially reasonable efforts to develop the * set forth in EXHIBIT F attached
hereto. The development required will be mutually agreed upon by both parties,
and if any engineering resources are required, then such resources shall be made
available at an hourly rate that is at least as favorable as rates charges by
Licensor to third parties, but in any event no more than * .
4.3 OWNERSHIP. All Client/Server Derivative Works and Client/Server
Derivative Works Specifications shall be owned * by * , subject to *
Intellectual Property Rights in and to * . The parties hereto agree that
CREATIVE shall own all rights, title, and interest in and to any CREATIVE
Improvements developed pursuant to this First Amendment. The parties hereto
agree that Licensor shall own all rights, title, and interest in and to any
Licensor Improvements developed pursuant to this First Amendment, Nothing herein
shall in any grant or be deemed to grant any license or right to Licensor in
CREATIVE's Sound Blaster, AWE or EMU audio technology including, but not limited
to, any rights in any PCB layout, design, silicon, firmware, API's, documented
or undocumented commands, or interfaces, whether to achieve compatibility or for
any other purpose.
*Confidential portions omitted and filed separately with the Commission.
-10-
<PAGE>
4.4 CLIENT/SERVER DERIVATIVE WORKS In furtherance of CREATIVE's rights
granted pursuant to Section 2.3 hereto, CREATIVE shall use the source code
version of the * and * at * facilities in * . * agrees to provide office space
for up to * designated by CREATIVE to * such * . * . CREATIVE shall not
incorporate any CREATIVE Technology into Client/Server Derivative Works without
the prior agreement of Licensor. In the event that CREATIVE desires to include
or incorporate any CREATIVE Technology into any Client/Server Derivative Works,
then the parties shall enter into good faith negotiations regarding the terms of
such incorporation, including without limitation, any royalty terms as
applicable.
4.5 DELIVERABLES. In support of CREATIVE's rights under Sections 2.3 of
this First Amendment no later than December 30, 1996, Licensor shall provide to
CREATIVE: (i) well-defined * , together with specifications and related
documentation for such * , as mutually agreed to by the parties; (ii) the
Licensor Server Modules and Licensor Client Modules, in the form necessary for
CREATIVE to fully exercise its rights herein, which Licensor will install on a
stand-alone server, not connected to any network outside of Licensor's
facilities, at Licensor's facilities in Boca Raton and (iii) the Licensor
Specifications and all other materials and information in Licensor's possession
or control as reasonably necessary for CREATIVE to fully exercise its rights
herein. In addition, executable copies of the * Upgrades and Updates thereto
will be delivered to CREATIVE promptly after they are developed by Licensor.
4.6 NRE COMMITMENT In the event that CREATIVE wants Licensor to assist
CREATIVE in the subsequent modification to Client/Sever Derivative Works,
Licensor agrees at Licensor's discretion to provide NRE services to CREATIVE in
support of CREATIVE's rights under Section 2.3 at a rate that is at least as
favorable as rates charged by Licensor to third parties, but in any event no
more than * (*) per hour, annually adjusted for inflation in accordance with the
Consumer Price Index. In addition, CREATIVE shall pay to Licensor an additional
* (*) for NRE services to be performed by Licensor in connection with developing
the Video WebPhone pursuant to this First Amendment, in accordance with the
following payment schedule; (i) * (*) due and payable on * ; and (ii) * ($*) due
and payable on * .
4.7 ACCEPTANCE OF * AND *. Within one (1) month of CREATIVE's receipt
of each of * and * ("DELIVERABLE PRODUCTS"), CREATIVE shall notify Licensor, in
writing, of its acceptance or reject of any Deliverable Products. If CREATIVE
rejects any Deliverable Products, CREATIVE shall provide reasons for its
rejection and shall, at the request of Licensor, return the rejected Deliverable
Product to Licensor. Licensor shall make commercially reasonable efforts to
promptly correct and replace such rejected Deliverable Products within sixty
(60) days after first delivery thereof, then CREATIVE, at its sole option, may
terminate its obligations, including without limitation any payment obligations,
with respect to such non-accepted Deliverable Products.
* Confidential portions omitted and filed separately with the Commission.
-11-
<PAGE>
4.8 ACCEPTANCE OF SERVER PRODUCTS. Within one (1) month of CREATIVE's
receipt of each of Server Products, CREATIVE shall notify Licensor, in writing,
of its acceptance or rejection of any Server Products. If CREATIVE rejects any
Server Products, CREATIVE shall provide reasons for its rejection, which
rejection shall be based on the lack of conformance with the performance,
functional and technical specifications for such Server Products and shall, at
the request of Licensor, return the rejected Server Product to Licensor.
Licensor shall make commercially reasonable efforts to promptly correct and
replace such rejected server product.
4.9 DEVELOPMENT OF CLIENT/SERVER DERIVATIVE WORKS SPECIFICATIONS.
Licensor will deliver to CREATIVE the Licensor Specifications by no later than
* , for CREATIVE to use in exercising its rights thereto pursuant to this First
Amendment. Within thirty (30) business days of receipt by CREATIVE of such
Licensor specifications, CREATIVE will delivery to Licensor written comments on
such Licensor Specifications, CREATIVE will delivery to Licensor written
comments on such Licensor Specifications, in the form of Client/Server
Derivative Works Specifications. Licensor shall use its commercially reasonably
efforts to correct or amend the Licensor Specifications in accordance with the
Client/Server Derivative Works Specifications to form a mutually agreed upon
final specifications for developing the Client/Server Derivative Works, and the
CREATIVE * pursuant to the terms of this First Amendment.
4.10 DEVELOPMENT OF SERVER PRODUCTS. Licensor will delivery to CREATIVE
a set of written specifications for Server Products upon availability but in no
event later than * for CREATIVE to review. CREATIVE will submit to Licensor
written request for modifications to such specifications, and Licensor shall use
its commercially reasonable efforts to make such specifications as NRE, subject
to the provisions of Section 4.6 hereto.
4.11 ADDITIONAL INFORMATION. Following development of the Client/Server
Derivative Works, both parties agree to make available to the other party all
information, Source Code and related materials necessary to perform all phases
of testing of the Client/Server Derivative Works, subject to the confidentially
provisions set forth in the section 19.0 of the Master Agreement, and to fully
cooperate with the testing and acceptance of such Client/Server Derivative
Works.
5. OBLIGATIONS OF THE PARTIES.
5.1 EXCLUSIVITY. In partial consideration for the rights and licenses
granted hereunder, the parties hereto agree that the period for exclusivity with
respect to the Activated Product and the Restricted Product, as set forth in
Section 1.4 of the Master Agreement, is hereby amended to extend for a period of
* . In addition, Licensor acknowledges and agrees that Licensor will not, and
will not allow any third party to market, promote, advertise, sell, offer for
sale, or otherwise distribute, through any distribution channel, any
Client/Server Derivative Works developed hereunder, either alone or jointly with
CREATIVE, for a period that is the earlier of: *
*Confidential portions omitted and filed separately with the Commission.
-12-
<PAGE>
*
5.2 CUSTOMER SUPPORT OF VIDEO WEBPHONE. Customer support for the Video
WebPhone shall be provided, at the election of CREATIVE, either by: (i)
CREATIVE, at any time, upon providing to Licensor ninety (90) days prior notice,
at CREATIVE's cost; or (ii) Licensor, for so long as CREATIVE pays to Licensor
an annual support fee of * payable in full in advance. The first annual support
fee payment shall be due and payable upon * , renewable on each subsequent
annual anniversary thereof, unless CREATIVE provides such ninety (90) day
notice; PROVIDED, HOWEVER, that CREATIVE may elect not to make the first annual
payment, thereby assuming the customer support obligation, by providing Licensor
with forty-five (45) days prior notice.
5.3 OBLIGATIONS OF CREATIVE. During the First Amendment Term, each
party shall be responsible for providing, all development and commercialization
resources, at its own expense, required to develop through first commercial
release the Video WebPhone developed pursuant to this First Amendment.
5.4 MINIMUM SALES OBLIGATIONS. CREATIVE agrees to purchase the
following cumulative minimum copies: (i) Licensor agrees to deliver to CREATIVE
* copies of a combination of WebPhone and Video WebPhone, in a proportionate
amount of each product to be determined solely be CREATIVE, within five (5)
business days after the Amendment Effective Date; and (ii) CREATIVE agrees to
place all future orders for WebPhone and Video WebPhone in combined quantities
of * copies. The parties hereto acknowledge and agree that as of the Amendment
Effective Date, CREATIVE has purchased a fully paid for a total of * copies
pursuant to the terms of the Master Agreement and a total of * as of the
Amendment Effective Date.
5.5
*
*Confidential portions omitted and filed separately with the Commission.
-13-
<PAGE>
*
(b) *
5.6 COMPATIBILITY. The parties hereto agree that, during the First
Amendment Term. (i) Licensor *, Licensor *, Client/Server Derivative Works
developed by Licensor and CREATIVE pursuant to this Agreement; and (ii) CREATIVE
* developed by CREATIVE pursuant to this Agreement shall retain a basic level of
compatibility so that at least the baseline functions mutually agreed upon in
writing by the parties (as such may be changed from time to time if the parties
mutually agree) can run on each parties' Client/Server Derivative Works
developed hereunder, including, without limitation, Client/Server Derivative
Works relating to the product in EXHIBIT G and as specified by the parties by
January 30, 1997. The parties further agree that, during the First Amendment
Term, each party shall require each of its licenses to such Client/Server
Derivative Works to retain such basic level of compatibility.
5.7 ANNUAL MEETINGS. The parties agree to hold annual meetings, at a
location and time to be mutually agreed, to review and exclusively establish the
basic compatibility provisions of section 5.6.
5.8 COMPATIBILITY MARK The parties agree to jointly establish a set of
standard, criteria and testing procedures, and to jointly develop a trademark
and /or logo that both parties may use to indicate the compatibility of each
parties' products, in accordance with Section 5.6 hereto.
5.9 ATTRIBUTION. Licensor agrees to prominently display the Share
Vision trademark and logo on the display screen for the Video WebPhone while the
Video WebPhone is in use.
6. TERM
6.1 FIRST AMENDMENT TERM. The term of this First Amendment shall be
* from the Amendment Effective date, unless terminated in accordance with
Section 6.3 hereto.
6.2 TERM OF MASTER AGREEMENT. The parties hereto agree to amend the
Term set forth in Exhibit A of the Master Agreement to mean * from August 31,
1996. The parties hereto further agree to amend the Activated Product Term and
the Restricted Product Term set forth in Exhibit A of the Master Agreement to
mean * from August 31, 1996.
6.3 TERMINATION. The provisions of Section 15.2 and 15.3 of the Master
Agreement shall apply to and effect termination of the First Amendment Term
hereto. Breach of a provision of this First Amendment shall not provide a cause
for termination of the Master Agreement.
*Confidential portions omitted and filed separately with the Commission.
-14-
<PAGE>
6.4 POST EXPIRATION OF FIRST AMENDMENT TERM. In partial consideration
for the fees set forth in Section 3 hereto, CREATIVE agrees that the rights
granted to Licensor hereunder shall be renewed annually, at the current royalty
structure set forth in this First Amendment, subject to mutually agreed
adjustments based on and no greater than the Consumer Price Index, solely for so
long as CREATIVE continues to pay the greater of: (i) the license maintenance
fee amount of * (*), which amount shall be treated as a non-refundable
pre-payment against any and fees paid or to be paid pursuant to Section 3.5 and
3.6 hereto; or (ii) in the event that the royalty payments from Licensor to
CREATIVE pursuant to Section 3.10 hereto exceed the royalty payments from
CREATIVE to Licensor pursuant to Section 3.5 hereto average over the prior
calendar year (such differential amount referred to as the "DELTA AMOUNT"),
* (*) of such Delta Amount.
6.5 SURVIVAL. In addition to the termination provisions set forth in
Sections 15.4 and 20.2 of the Master Agreement, Section 1,4.3, 6.5, 8 and 9 of
this First Amendment shall survive termination of this First Amendment.
7. SOURCE CODE ESCROW
7.1 Licensor Technology. Within twenty (20) days after the Amendment
Effective Date and promptly thereafter for subsequent deposits, Licensor shall
cause to be deposited with an escrow agent, a complete working copy of the
Source Code for the Licensor Technology licensed hereunder, under the form of
software escrow agreement set forth in EXHIBIT E of the Master Agreement, and
shall be released to CREATIVE pursuant to EXHIBIT E of the Master Agreement in
the event that Licensor fails to materially perform its obligations under
Section 4.5 of this First Amendment, in addition to the release conditions set
forth in sections 16.0(i) -(iii) of the Master Agreement.
7.2 Client/Server Derivative Works. Within twenty (20) days after the
date on which Client/Server Derivative Works are tested and accepted as final by
both parties, the parties shall cause to be deposited with an escrow agent a
complete working copy of the Source Code for the Client/Server Derivative Works
developed hereunder, under a form of software escrow agreement similar to that
set forth in EXHIBIT E of the Master Agreement, as modified by mutual agreement
of the parties hereto to be consistent with the terms of this First Amendment.
Thereafter, both parties shall have free and unlimited access to the Source
Code, subject to any and all restrictions on use set forth in this First
Amendment, for the First Amendment Term and any post-expirations term defined in
Section 6.4 hereto.
8. WARRANTY AND INDEMNITY
8.1 CREATIVE WARRANTY. CREATIVE represents and warrants that: (i) the
CREATIVE Video Technology operates and will operate substantially in accordance
with the specifications set forth in CREATIVE's documentation therefore; (ii)
the CREATIVE Video Technology and the use thereof as contemplated by this First
Amendment do not infringe or misappropriate any copyright, trade secret,
publicity, privacy, or, to CREATIVE's knowledge, other rights of any third
party; (iii) CREATIVE has the sole and exclusive right to grant the rights and
licenses contemplated by this First
*Confidential portions omitted and filed separately with the Commission.
-15-
<PAGE>
Amendment, without the need for any consents, approvals or immunities not yet
obtained; (iv) CREATIVE has full power to enter into the First Amendment, to
grant the rights and licenses granted hereunder, and to perform its obligations
hereunder; (v) to the best of CREATIVE's knowledge as of the Amendment Effective
Date, the CREATIVE Video Technology does not infringe any patent rights of any
third party; and (vi) CREATIVE does not know of any actual, alleged, pending, or
threatened third party claim of infringement or misappropriation of any
intellectual property rights of a third party.
8.2 LICENSOR WARRANTY. Licensor represents and warrants that: (i) the
Licensor Technology, *, and Server Products (the "WARRANTY PRODUCTS")
operate and will operate substantially in accordance with the specifications set
forth in Licensor's documentation therefor; (ii) the Warranty Products and the
sue thereof as contemplated by this First Amendment do not infringe or
misappropriate any copyright, trade secret, publicity, privacy, or, to
Licensor's knowledge, other rights of any third party; (iii) Licensor has the
sole and exclusive right to grant the rights and licenses contemplated by this
First Amendment, without the need for any consents, approvals or immunities not
yet obtained; (iv) Licensor has full power to enter into this First Amendment,
to grant the rights and licenses granted hereunder, and to perform its
obligations hereunder; (v) to the best of Licensor's knowledge as of the
Amendment Effective Date, the Warranty Products do not infringe any patent
rights of any third party; and (vi) Licensor does not know of any actual,
alleged, pending, or threatened third party claim of infringement of
misappropriation of any intellectual property rights of a third party.
8.3 LIMITATIONS OF WARRANTIES. THIS SECTION 8 SETS FORTH ALL OF THE
WARRANTIES OF A PARTY TO THE OTHER PARTY WITH RESPECT TO THE SUBJECT MATTER OF
THIS FIRST AMENDMENT. EACH PARTY HEREBY DILSCLAIMS ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
8.4. LIMITATION OF LIABILITIES. EXCEPT FOR OBLIGATION UNDER THIS
SECTION 8, NEITHER PARTY SHALL HAVE ANY LIABILITY FOR LOSS OF PROFITS, LOSS OF
REVENUES OR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY
DAMAGES, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
8.5 INDEMNIFICATION BY CREATIVE. Subject to the conditions set forth in
Section 18.3 of the Master Agreement, CREATIVE shall indemnify, hold harmless
and defend Licensor against any claim, suite or proceeding and any damages or
liability there from or settlement thereof (including reasonable fees of
attorneys and related costs) to the extent; (i) based on a claim that, solely as
a result of the processes or materials selected by CREATIVE for manufacturing
and reproduction, a CREATIVE Application, CREATIVE Improvement, or the CREATIVE
* infringes the patent, copyright, trademark, trade secret, publicity,
defamation or other rights of any third party; (ii) resulting from any material
breach of this Agreement by CREATIVE; or (iii) based on a claim that Licensor's
manufacture, use, sale, or distribution or CREATIVE Video Technology, CREATIVE
Technology, A CREATIVE Applications, (collectively, "CREATIVE
PRODUCTS/TECHNOLOGY")
*Confidential portions omitted and filed separately with the Commission.
-16-
<PAGE>
infringes the patent, copyright, trademark, trade secret, publicity, privacy, or
other rights of any third party, except to the extent that such infringement is
due solely to the combination of CREATIVE Products/Technology with Licensor
Products/Technology (as defined in Section 8.6 below), and except to the extent
that such infringement is due solely to the development contributions of
Licensor, if any, to CREATIVE Technology, CREATIVE Video Technology, which
infringement would not have occurred but for such development contributions, and
except to the extent that such infringements due solely to Licensor
Products/Technology.
8.6 INDEMNIFICATION BY LICENSOR. Subject to the conditions set forth in
Section 18.3 of the Master Agreement, Licensor shall indemnify, hold harmless
and defend CREATIVE against any claim, suit or proceeding and any damages or
liability therefrom or settlement thereof (including reasonable fees of
attorneys and related costs) to the extent: (i) based on a claim that any
Licensor Technology, Licensor applications, * , Licensor Video WebPhone, * , or
* (collectively, "LICENSOR PRODUCTS/TECHNOLOGY") infringes the patent,
copyright, trademark, trade secret, publicity, privacy, or other rights of any
third party, EXCEPT to the extent that such infringement is due solely to the
combination of CREATIVE Products/Technology or the CREATIVE * with the Licensor
Products/Technology, which infringement would not have occurred but for such
combination, and except to the extent that such infringement is due solely to
the development contributions of CREATIVE, if any, to Licensor technology, which
infringement would not have occurred but for such development contributuions and
EXCEPT to the extent that such infringement is due solely to CREATIVE
Products/Technology, and EXCEPT as to which CREATIVE otherwise owes indemnity to
Licensor pursuant to Section 8.5 hereto; or (ii) resulting from any material
breach of this Agreement by Licensor.
9. OTHER TERMS
9.1 AMENDED EXCLUSIVITY. In partial consideration for the rights and
licenses granted by Licensor to CREATIVE hereunder, CREATIVE agrees to amend
Section 1.4 of the Master Agreement to: (i) permit Licensor * its * through any
* ; and (ii) to permit * identified by Licensor during the original * Term of
the Master Agreement to use, sell, or distribute the * with a graphical user
interface that is customized for or modified by or otherwise designed by or for
such * , subject to the conditions set forth in section 1.4 of the Master
Agreement. For purposes of this First Amendment, the term * shall be amended to
include a reference to Video WebPhone Technology, in addition to WebPhone
Technology. In addition, Licensor specifically agrees that during the * Term of
the Master Agreement, Licensor shall not license or sell for retail sale, or
otherwise distribute a * ; provided, however, that Licensor may license, sell or
otherwise distribute a * * to (a) * ; (b) * ; (c) customers via * . In any
event, there will be no restrictive covenants on Licensor's ability to
distribute * , EXCEPT to the extent that Licensor's rights to distribute the *
are limited to the licenses granted in Section 2.1 hereto.
*Confidential portions omitted and filed separately with the Commission.
-17-
<PAGE>
9.2 INCORPORATED TERMS. All other terms and conditions of the Master
Agreement shall remain in full force and effect during the Term of the Master
Agreement, as amended by Section 6.2 hereto. The following terms and conditions
shall apply to Video WebPhone, and are herein amended to refer to and include
Video WebPhone provided hereunder; Sections 1 (as amended by this First
Amendment); 1.3,1.4,1.5,2.0,3.0,4.0,6.4,8.0,10.4,10.5,10.6 (as amended by this
First Amendment), 10.7,10.8,11.1,12.0,13.0,15.2,15.3,15.4,15.5,18.3,18.4,19.0
and 20.0 (with amended Section 20.5). The following terms and conditions shall
apply to the Client/Server Derivative Works, and are herein amended to refer to
and include Client/Server Derivative Works provided hereunder. Sections 1.3 and
1.6I; 2.0,8.0,10.4, 10.7,10.8, 15.2, 15.3,15.5,18.3,18.4,19.0, and 20.0 (with
amended Section 20.5). A breach of any term or condition of this First Amended
solely relating to Video WebPhone, CREATIVE Video Technology, License
Technology, or CREATIVE Applications shall not provide a basis for termination
of the Master Agreement or of any other amendments thereto. Similarly, a breach
of any term or condition of the Master Agreement solely relating to WebPhone
shall not provide basis for termination of the First Amendment or of any other
amendments thereto.
9.3 RELATIONSHIP OF THE PARTIES. The parties further agree that nothing
in the Master Agreement or in this First Amendment (except for the restrictive
covenants set forth in Section 5.5 and the license provisions of Section 2
hereto) will prevent either party hereto from marketing and distributing any
other work, whether similar or dissimilar to the Licensed Product (as that term
is defined in the Master Agreement), or any Client/Server Derivative Works
developed hereunder. In furtherance of the relationship established by the
parties under both this First Amendment and the Master Agreement, the parties
hereto agree to use their commercially reasonable efforts to support and promote
the Video WebPhone products developed pursuant to this First Amendment and the
WebPhone products developed pursuant to the Master Agreement.
9.4 CONFLICT. In the event of any conflict between the terms of this
First Amendment and the terms of the Master Agreement, the terms of this First
Amendment shall control with respect to the subject matter of this First
Amendment.
9.5 CONFIDENTIALITY. The parties hereto agree to amend Section 19.2
of the Master Agreement to include the following sentence: "Each party shall
only use the other party's Proprietary Information in furtherance of its rights
and obligations under this Agreement."
10. REPRESENTATIONS.
Each party hereby represents to the other that the undersigned has full
and binding authority to execute this Amendment.
-18-
<PAGE>
ACCEPTED AND AGREED:
CREATIVE TECHNOLOGY LTD. NETSPEAK CORPORATION
Signature: /s/ LUNG YEH Signature: /s/ ROBERT KENNEDY
--------------------------- -------------------------
Printed Name: Lung Yeh Printed Name: Robert Kennedy
----------------------- -------------------------
Title: Vice President Title: President
------------------------------- ----------------------------
12-6-96 12-6-96
EXHIBIT A
Creative Video Technology
-------------------------
Summary
*
1. Brief Specification
*
1.1 Video input and output
*
1.2 Digital output and input
*
1.3 Sampling frequency
*
1.4 Source coding algorithm
*
2. Source Coder
2.1 Source Format
*
2.2 Video source coding algorithm
*
<PAGE>
EXHIBIT B
Features and Specifications (WebPhone/Video WebPhone)
*
<PAGE>
EXHIBIT C
LICENSOR CLIENT MODULES/LICENSOR SERVER MODULES
I. LICENSOR CLIENT MODULES
*
II. LICENSOR SERVER MODULES
*
<PAGE>
EXHIBIT D
CREATIVE APPLICATIONS/LICENSOR APPLICATIONS
I. CREATIVE APPLICATIONS
*
II. LICENSOR APPLICATIONS
*
<PAGE>
EXHIBIT E
SERVER PRODUCTS; NOTEBOOK
I. SERVER PRODUCTS
*
<PAGE>
EXHIBIT F
CREATIVE TECHNOLOGY; CREATIVE *
*
<PAGE>
EXHIBIT G
BASIC COMPATIBILITY PRODUCTS AND SPECIFICATION
*
<PAGE>
EXHIBIT H
EXCEPTED COMPANIES
*
<PAGE>
February 19, 1997
Mr. Robert Kennedy
President
NetSpeak Corporation
902 Clint Moore Road, Suite 104
Boca Raton, FL 33487
Dear Mr. Kennedy:
This letter is a Second Amendment to the June 7, 1996 Technology
License and Development Agreement (the "Agreement") between Creative Technology,
Ltd. and Netspeak Corporation as amended on December 6, 1996 (the "First
Amendment"). The Agreement and First Amendment are hereby further amended to
provide as follows:
1. There shall be a new definition of "Video WebPhone Special Edition"
hereby defined as a limited featured Video WebPhone differing from the full
featured Video WebPhone by having only a single line, with a limited number of
outgoing messages permitted from time to time, limited voicemail, personal
directory entries, no party specific blocking, no initiation of audio
conferencing, or file transfer permitted. Video WebPhone Special Edition only is
intended to be sold by Creative Labs, Inc. via the Internet and retail channels
for $ * . For Internet sales, end-users can download the software for a $ *
charge and, once that charge clears through Creative's merchant system, be sent
an activation code unlocking the features of the Video WebPhone Special Edition.
End-users wishing to upgrade via the Internet to the full featured Video
WebPhone will, upon payment of a different fee (currently anticipated to be $ *
) be sent by Internet e-mail a different activation code and/or additional
software, and revenue for such an upgrade to the full featured Video WebPhone
shall be shared pursuant to Section 3.4 of the First Amendment.
2. With respect to the Video WebPhone Special Edition only, Sections 3.3
and 3.4 of the First Amendment are hereby amended such that the * or other * to
NetSpeak shall be * per copy. There will be * for the Video WebPhone Special
Edition or for activation codes relating thereto. The * shall be * for each *
or, for * , for each * code for the Video WebPhone Special Edition and * .
3. With respect to the Video WebPhone Special Edition only, the First
Amendment Term as specified in Section 6.1 for the First Amendment is hereby
amended to a * period from the date of first contained shipment from Creative
Labs, Inc. but ending in no event later than September 1, 1997.
*Confidential portions omitted and filed separately with the Commission.
All other terms and conditions of the First Amendment and the Agreement shall
remain in full force and effect. Attached hereto is Attachment A which shall
serve as a clarification.
Thank you for your courtesy in this matter. Please sign and return a copy of
this letter signifying our agreement.
Sincerely yours,
/s/ LUNG YEH
- -------------------------------
Lung Yeh
Vice President - Communications
AGREED TO AND ACCEPTED:
NETSPEAK CORPORATION
Signature: /s/ ROBERT KENNEDY
------------------
Printed Name: Robert Kennedy
Title: President
Date: February 24, 1997
<PAGE>
ATTACHMENT A
This attachment is being added to serve as a clarification of the Second
Amendment letter agreement dated February 19th, 1997, to the June 7 1996
agreement between Creative Technology Ltd. and NetSpeak Corporation.
*
It's a * promotion which will not extend beyond *.
*
*
Creative will *, and * in * for the * which are to be used for the *.
NetSpeak has agreed that it will not require any * for the *.
Creative may sell the * on the * in conjunction with its * effort but not in *
of its *. It's understood and agreed that the * sales may precede the sale of a
* effort by a *. HOWEVER, Creative will not maintain an * sales effort if it
does not continue to maintain the * . The whole idea was to produce a
significant * and not just an * for *. If Creative decides not to continue the *
in * in *, then it will not continue to receive the * and the * from NetSpeak
unless mutually agreed to by the parties.
Clarification of Paragraph 2 of the Second Amendment:
*
Agreed to:
/S/ROBERT KENNEDY /S/LUNG YEH
- ------------------------- -------------------------------------
Robert Kennedy, President Lung Yeh, Vice Pres. - Communications
NetSpeak Corporation Creative Technology Ltd.
*Confidential portions omitted and filed separately with the Commission.
EXHIBIT 10.14
DISTRIBUTOR AGREEMENT
BETWEEN
ROCKWELL INTERNATIONAL, SSD
AND
NETSPEAK CORPORATION
<PAGE>
TABLE OF CONTENTS
PAGE
----
DISTRIBUTOR AGREEMENT...........................................1
RECITALS........................................................1
1. SOLE AND ENTIRE AGREEMENT..............................1
2. DEFINITIONS............................................2
3. LICENSE AND APPOINTMENT AS RESELLER....................2
4. TERM...................................................6
5. DUTIES OF NETSPEAK.....................................6
6. DUTIES OF ROCKWELL.....................................7
7. TRADE NAMES, TRADEMARKS AND PRIVATE LABELS.............8
8. PRICING AND DISCOUNTS..................................8
9. FIELD TESTING..........................................9
10. SALES AND PRE-SALES SUPPORT............................9
11. ORDERING AND DELIVERY.................................10
12. WARRANTY..............................................11
13. INDEMNIFICATION.......................................12
14. TRAINING AND DOCUMENTATION............................13
15. TERMINATION...........................................13
16. CONFIDENTIALITY.......................................14
17. ESCROW................................................15
18. CUSTOM APPLICATIONS AND CONSULTING....................15
19. LIMITED LIABILITY.....................................15
20. GENERAL TERMS.........................................15
<PAGE>
DISTRIBUTOR AGREEMENT
This Agreement is made and entered into this 1st day of February, 1997,
by and between NETSPEAK CORPORATION, a Florida corporation, with its principal
place of business at 902 Clint Moore Road, Suite 104, Boca Raton, FL 33487
("NETSPEAK") and ROCKWELL International Corporation, Switching Systems Division,
a Delaware corporation, with its principal place of business at 300 Bauman Ct.,
Wood Dale, Illinois 60191 ("ROCKWELL").
RECITALS
WHEREAS, ROCKWELL and NETSPEAK have jointly agreed to a Memorandum of
Understanding describing the desire of both companies to enter into an agreement
whereby NETSPEAK will become a supplier of its various technologies and products
to the Switching Systems Division of ROCKWELL; and
WHEREAS, ROCKWELL and NETSPEAK have begun to jointly present information
regarding the use of NETSPEAK technologies in combination with ROCKWELL
products; and
WHEREAS, ROCKWELL and NETSPEAK desire to agree on processes and procedures for
meeting Customers' desires to use their existing products in combination; and
WHEREAS, ROCKWELL manufactures, markets and sells Automatic Call Distributor
("ACD") products, and related Computer Telephony Integration Software and
Services known as Galaxy and Spectrum ACD Systems;
WHEREAS, NETSPEAK manufactures, markets, and licenses certain Web Enabled
Telephony software families which can be used in connection with the ROCKWELL
ACD systems:
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree to
enter into this Agreement as follows:
1. SOLE AND ENTIRE AGREEMENT
This Agreement, which constitutes the entire agreement between the parties,
supersedes and replaces any and all prior or contemporaneous understandings or
agreements. This Agreement may be amended, modified, or revoked only by a
written instrument executed by both ROCKWELL and NETSPEAK.
<PAGE>
2. DEFINITIONS
As used in this Agreement, the following terms shall have the designated meaning
detailed below:
2.1 "ROCKWELL PRODUCT" shall mean the Galaxy, Spectrum and ACDs and UniverCTI,
VarCTI Software and related services as the same may be modified, revised,
renamed or enhanced from time to time.
2.2 "NETSPEAK PRODUCT" shall collectively mean the NETSPEAK Software and all
Professional Services including, but not limited to Consulting, Training,
Maintenance, and Support as listed in Exhibit A, "Product List, Pricing and
Discount Schedule".
2.3 "NETSPEAK SOFTWARE" shall mean the Web Enabling Telephony family of software
(in object code form) as described in Exhibit A including all modifications,
revisions, and enhancements thereto.
2.4 "NETSPEAK PRODUCT DOCUMENTATION" shall mean the technical documentation for
the NETSPEAK Software, including but not limited to the NETSPEAK Installation,
Training, Users and Maintenance Manual, release notes and updated installation
instructions and user guides.
2.5 "CUSTOMER" shall mean ROCKWELL's direct-end users customers to whom
Product(s) are supplied and licensed for internal use, and also shall mean
ROCKWELL's agents appointed for distribution or resale of ROCKWELL and NETSPEAK
Product(s), referred to in this Agreement as "End User/Agent".
2.6 "MARKET" shall mean any standalone or networked Automatic Call Center having
greater than 125 seats, worldwide.
3. LICENSE AND APPOINTMENT AS RESELLER
3.1 EXCLUSIVE LICENSE TO ROCKWELL. NETSPEAK & ROCKWELL agree to complete the
definition and final terms for granting the rights to an Exclusive License to
Rockwell, within 30 days of Effective Date of this Agreement.
NON-EXCLUSIVE LICENSE TO ROCKWELL Subject to the terms and conditions
hereinafter set forth, NETSPEAK hereby grants to and ROCKWELL hereby accepts
from NETSPEAK, a restricted worldwide, non-exclusive and non-transferable
license resell the NETSPEAK Product and to sublicense the NETSPEAK Software, for
use with any equipment, and/or applications, to CUSTOMERS within the defined
MARKET, during the term of this Agreement.
3.2 NATURE OF AGREEMENT. The software license granted in Section 3.1 only grants
to ROCKWELL a license to distribute NETSPEAK Software, including any specific
software created for ROCKWELL unless other-wise stated in 3.5, and does not
transfer any right, title or interest to
-2-
<PAGE>
any NETSPEAK Software to ROCKWELL or ROCKWELL's End User/Agents. The NETSPEAK
Software will be licensed to ROCKWELL and its End User/Agents on a right to use
in perpetuity basis with all intellectual property rights remaining the property
of NETSPEAK. Use of the terms "sell," "license," "purchase," "license fees" and
"price" will be interpreted in accordance with this Section.
3.3 INDEPENDENT CONTRACTORS. The parties have entered into this Agreement solely
as independent Contractors and nothing contained herein shall be construed as
giving rise to a partnership, joint venture, or any other form of business
organization. Nothing contained in this Agreement shall be construed as giving
either party any exclusive rights to any products or technology of the other
party, as all rights and obligations under this Agreement are of a non-exclusive
nature except as stated in section 3.1. Subject to their respective
confidentiality and related obligations set forth in this Agreement, each party
shall be free to market and sell its products to and in conjunction with, and
disclose its own unrestricted technology to, competitors of the other party
hereto.
3.4 ASSIGNMENT. This Agreement is not assignable by either party in whole or in
part without prior written consent of both parties. Such consent shall not be
unreasonably withheld by either party. Neither change in ownership or control of
either party nor assignment of this Contract by either party shall be a valid
basis for termination of this Agreement.
3.5 ADDED DEVELOPMENT. This Agreement may be altered from time to time as
mutually agreed to tasks for development by the parties. Both parties reaffirm
that they desire to enter into an agreement aimed at the joint development,
integration, and marketing of Call Center products within the ROCKWELL Product
line, that will address existing and new markets. The joint
development/integration project(s) may combine the technologies of both ROCKWELL
and NETSPEAK. It is understood that a definitive agreement will be required to
identify the rights, interests and responsibilities of the parties, including
the protection of intellectual property rights in the jointly developed products
and their derivatives. This definitive agreement must be reduced to writing and
signed by both parties in advance of any actual work accomplishment or payment
of funds.
3.6 APPROVAL OF SUBCONTRACTORS. NETSPEAK shall manage subcontractor(s) issues
and to fully execute the Contractual obligations of NETSPEAK, including but not
limited to cost and schedule matters, under this Agreement.
3.7 PIONEER PROGRAM MARKETING
ROCKWELL will create an Offering to be called the INET Call Center
Gateway Pioneer Program ("Pioneer Program" or the "Offering") which will be
available to six customers with existing ROCKWELL Products. The Offering will
enable existing ROCKWELL customers to link the customer's Internet Web site with
the customer's existing call center through the use of NETSPEAK Products sold
and licensed to the customer by ROCKWELL.
-3-
<PAGE>
Customers purchasing this offering will be entitled to the use of the
NETSPEAK software for internal use only, in demonstration programs, Beta tests,
and research programs, but will be prohibited, through contractual and/or
license restrictions, from making the services enabled by the Offering available
to end users commercially.
The list price of the Offering will be $ * . The purchase price
includes a software license for one Gateway server with capacity to support up
to six agent positions simultaneously. The price does not include any of the
hardware components which will be required to support the Offering. The price
also includes six WebPhone software licenses for agent positions. Also included
in the price is membership in the Pioneer Program, which entitles the customer
to participate in a series of customer seminars and meetings with ROCKWELL and
NETSPEAK designed to identify requirements for future web-call center products
and capabilities and to share information with other members about the
application of the technologies and about operational issues discovered through
the use of the Offerings. This membership will continue through other phases of
development unless otherwise specified in writing.
ROCKWELL will contract with customers through its normal and standard
sales procedures for the Offering. Upon the receipt and acceptance of an order
for this Offering, ROCKWELL will immediately issue a Purchase Order to NETSPEAK
for a "unit" of the product. The "unit" will include:
-the Gateway server software license
-six WebPhone licenses for Agent position usage
-documentation including a User Manual and Administration Guide
-agreement to provide unlimited telephone technical support for
Pioneer customers
-agreement to install, configure, and test the software on user
supplied hardware
-shipping from NETSPEAK's location to the customer's site
-one master copy of NETSPEAK WebPhone and MiniPhone client software and
the rights to distribute an unlimited number of copies of that software enabled
for full use with the NETSPEAK gateway server, but not enabled for full Internet
usage
For each "unit" of the Offering sold at list price, NETSPEAK will
invoice ROCKWELL for $ * . For any "units" sold to Customers by ROCKWELL at a
discounted price, jointly agreed to
*Confidential portions omitted and filed separately with the Commission.
-4-
<PAGE>
by NETSPEAK, NETSPEAK will invoice ROCKWELL by applying the same discount to the
$ * as ROCKWELL applied to the Customer's purchase price.
Each Company, in the course of its normal sales and marketing
activities, may identify potential Customers and/or sales opportunities for the
Offering. If there is sufficient Customer interest in the Offering, the parties
will notify the appropriate ROCKWELL sales representative to initiate a sales
effort to encourage the Customer to purchase the Offering.
While ROCKWELL will execute all sales, from time to time, ROCKWELL may
require NETSPEAK's participation in joint sales activities ("Engagement").
ROCKWELL will notify NETSPEAK of such requirements and work to arrange and
coordinate Engagements and other mutually agreeable activities.
Upon agreement by the parties to engage in specific joint
sales/marketing efforts for an identified potential Customer, each party shall
identify a representative to coordinate their respective activities in support
of the Engagement pursuant to this agreement. Each representative shall act as a
single point of contact through whom all activities associated with the specific
Engagement shall be directed.
NETSPEAK shall create and publish written materials for the Program
designed to provide Customers with the ability to use and administer the
NETSPEAK software and Gateway services (documentation). This documentation shall
only be distributed to Customers after review and approval by ROCKWELL. ROCKWELL
will provide support and assistance to NETSPEAK to assure that the NETSPEAK
documentation meets with ROCKWELL's approval and ROCKWELL will appoint a
representative to work directly with NETSPEAK on documentation issues.
The parties may, from time to time, further develop such additional
mutually acceptable practices and procedures for matters relating to an
Engagement and closing and implementing sales as may be desirable, including
without limitation, following up leads, resolving marketing conflicts,
processing orders, providing copies of relevant documentation necessary to close
a sale, and coordination of trouble detection and resolution.
NETSPEAK shall provide Customers who purchase the Offering specific
information on how to contact NETSPEAK to seek technical support for the
Offering. Technical support for the Offering should be available immediately
during general business hours across the United States (8AM-9PM EST M-F) with
established procedures for "on-call" access to Technical Support via pagers or
other central dispatch 24 hours a day, seven days a week. Customers will be
advised that limited Support will be available outside of general business hours
because the product is restricted to internal use. However, in cases where
customers require availability of Technical Support outside standard hours in
order to sustain specific programs in exceptional cases, such as a market
research session or demonstration, ROCKWELL and NETSPEAK shall attempt to
provide
*Confidential portions omitted and filed separately with the Commission.
-5-
<PAGE>
such Support in an appropriate manner. Netspeak acknowledges and agrees that
Engagements will be contracted with ROCKWELL.
The term of this Pioneer Program shall be six (6) months from the date
of this Agreement. The Pioneer Program is intended to provide an interim
offering for Customers in advance of the first commercial product to be
developed by the Companies.
4. TERM
4.1 The initial term of this Agreement shall be for a period of two (2) years
from the date of execution by both parties and, upon expiration of such term,
shall renew itself for (2) successive periods of one (1) year each unless the
parties mutually agree in writing a minimum of 90 days in advance that the
Agreement shall be canceled.
5. DUTIES OF NETSPEAK
NETSPEAK shall, at its own expense and without remuneration from ROCKWELL,
perform the following during the term and the option period, if exercised, of
this Agreement:
5.1 DEMONSTRATION SETS NETSPEAK shall supply for ROCKWELL's use for the period
of this Agreement, and, upon ROCKWELL request, may continue to supply during the
extensions thereto, six (6) demonstration software packages and one (1)
application/maintenance software package, complete product documentation,
installation instructions, user manuals, and suitable quantities of sales
support materials to perform integration, test, application development, and
demonstrate the system in ROCKWELL's demo center. Up to 50 copies of additional
collateral material and 2 manuals may be reasonably requested by ROCKWELL and be
supplied by NETSPEAK. All copies will be updated by NETSPEAK within a reasonable
time after the effective date of each release. ROCKWELL at its own expense with
prior permission by NETSPEAK, reproduce for internal use only any such printed
or electronically recorded material pertaining to Demonstration Packages and
manuals which were originally supplied by NETSPEAK. NETSPEAK may, at its option
and its expense, lease a communication link to establish a connection with
ROCKWELL's test bed, the use of which shall be coordinated and approved by
ROCKWELL in advance. NETSPEAK shall not have access to any embedded software in
ROCKWELL's test bed. Upon the expiration or termination of the Agreement, each
party will return to the other party in good condition, wear and tear excepted,
all supplied hardware and software. All documentation, whether in hard copy or
soft files, shall be returned by each party to the other party or destroyed, as
the other party may direct.
5.2 MARKETING REPORTS. NETSPEAK shall provide ROCKWELL on-line or physical
access to reports detailing marketing or technical information on products
competitive comparisons, special sales or service suggestions, competitive
announcements, and new marketing or technical support material for the NETSPEAK
Product. NETSPEAK shall respond reasonably to all inquiries and reasonable
requests for sales support from ROCKWELL.
-6-
<PAGE>
5.3 WARRANTY SUPPORT. NETSPEAK will provide free warranty support to ROCKWELL
for 90 days after customer acceptance or 180 days from shipment, which ever
occurs first. ROCKWELL will be responsible to take first call from its Customers
during any warranty period. The procedural steps for tier 2 warranty service
shall be as set forth in Exhibits E and G of this Agreement.
5.4 NETSPEAK PRODUCT SUPPORT. NETSPEAK shall provide to ROCKWELL enhancements
and updates to the NETSPEAK Product when changes occur. All proposed
enhancements and updates will be subjected to a reasonable compatibility check
with the ROCKWELL Product prior to release. Such compatibility test shall be
conducted by NETSPEAK and verified by ROCKWELL. NETSPEAK will provide a Product
Change Notice a minimum of thirty (30) days in advance of a new release or the
deletion of any feature(s). Engineering Change Notices and adequate sustaining
technical support for all interfaces encompassed under this Agreement for its
ten-n shall be provided to ROCKWELL at no cost so long as NETSPEAK continues to
support such interfaces.
5.5 PRODUCT DISCONTINUANCE. NETSPEAK may discontinue the production or
availability of any Product at any time during the term of the Agreement by
three (3) months prior written notice. In the event of a Product discontinuance
hereunder, NETSPEAK shall at the option of ROCKWELL either provide substitute
Products which under normal and proper use: (i) shall not materially or
adversely affect physical or functional interchangeability or performance
(except where there is written agreement between the parties that specific
characteristics will be so affected), (ii) shall not detract from the safety of
the Product or allow ROCKWELL to make an end of cycle buy of such discontinued
product the production of which shall not extend beyond twenty four (24) months
from the time notice is given.
6. DUTIES OF ROCKWELL
ROCKWELL shall, at its own expense and without remuneration from NETSPEAK,
perform the following during the entire period of this Agreement:
6.1 SALES AND MARKETING. ROCKWELL shall maintain a sufficient world-wide
marketing and sales program augmented by outside third party sales and marketing
arrangements as ROCKWELL may determine to be appropriate to sell the NETSPEAK
Products, perform all necessary promotion and advertising of the NETSPEAK
Products, and use its diligent efforts to effect the maximum amount of gross
sales of the NETSPEAK Products. This will include provisions for NETSPEAK to
participate in ROCKWELL sponsored trade shows, user group forums and product
demonstrations subject to availability and approval by ROCKWELL.
6.2 SALES FORECASTS. ROCKWELL shall submit a rolling six-month non-binding sales
forecast, solely for the purpose of NETSPEAK internal planning.
6.3 TERMS AND CONDITIONS OF RESALE. For each system of the NETSPEAK Product
sold, ROCKWELL will obtain from End User/Agent or its Customer, a fully executed
ROCKWELL
-7-
<PAGE>
standard General Terms and Conditions of Sale document attached hereto as
Exhibit G. End User/Agents shall receive no interest in the NETSPEAK Software
other than a sublicense. Title to the NETSPEAK Software shall not be transferred
to End User/Agent. All ROCKWELL End Users will be prohibited to re-license the
NETSPEAK Software.
6.4 PRODUCT SUPPORT. ROCKWELL will promptly provide information and initial
training for ROCKWELL Products at a ROCKWELL facility, regarding enhancements
and updates of the ROCKWELL Products to the extent they will impact the
operation or functionality of the NETSPEAK Product, when such changes occur.
Pertinent Engineering Change Notices and adequate sustaining technical support
shall be provided to NETSPEAK at no cost so long as ROCKWELL continues to
support such interfaces.
6.5 ASSIGNMENT OF LIAISON. ROCKWELL agrees to assign a technical, service and
sales individual to act as the focal point and liaison with NETSPEAK.
6.6 SEMIANNUAL REVIEWS. ROCKWELL agrees to meet with representatives on a
semi-annual basis to review the relationship between ROCKWELL and NETSPEAK,
sales opportunities, service status and product requirement. This meeting will
take place at a mutually agreed upon time and location, the location to
alternate between each companies facilities.
7. TRADE NAMES, TRADEMARKS AND PRIVATE LABELS
7.1 USE OF NETSPEAK TRADEMARKS. During the term of this Agreement, ROCKWELL
shall have the right to use the trade names and trademarks of NETSPEAK applied
to the NETSPEAK Products whether registered or not, in advertising and
promotional literature solely in connection with ROCKWELL's sales of the
NETSPEAK Products. Such use shall identify the trade names and trademarks as the
exclusive property of NETSPEAK. Upon termination or expiration of this
Agreement, ROCKWELL shall immediately cease and desist from use of all trade
names and trademarks of NETSPEAK in any manner whatsoever for new installations.
NETSPEAK shall have the same rights to ROCKWELL Tradenames and Trademarks with
respect to this section, except that such use shall be subject to prior review
and approval by ROCKWELL.
7.2 PROPRIETARY RIGHTS. ROCKWELL acknowledges that NETSPEAK owns and retains all
trade names and trademarks and other proprietary rights in or associated with
the NETSPEAK Product, and agrees that it will not at any time during or after
this Agreement assert or claim any interest in or do anything that may adversely
affect the validity of, or cause confusion in the ownership of, any Mark or
copyright belonging to or licensed to NETSPEAK (including, without limitation,
any act which may infringe or lead to the infringement of any of NETSPEAK's
proprietary rights).
7.3 OBLIGATION TO PROTECT. ROCKWELL agrees to use reasonable efforts to protect
NETSPEAK's proprietary fights and to cooperate in NETSPEAK's efforts to protect
its proprietary rights. ROCKWELL agrees to promptly notify NETSPEAK of any known
or suspected breach of NETSPEAK's proprietary fights that comes to ROCKWELL's
attention.
-8-
<PAGE>
8. PRICING AND DISCOUNTS
8.1 PRICE STABILITY. Product pricing for individual Product components and
pre-configured versions of the Product are defined in Exhibit A. Prices shall be
firm for twelve (12) months from date the Agreement is signed after which
NETSPEAK may adjust prices limited to a three (3%) increase for the prior year,
on its software products, upon no less than ninety (90) days prior written
notice to ROCKWELL. No such increase shall be effective for any ROCKWELL order
accepted from an End User/Agent or for any proposal to an End User/Agent which
was dated prior to the date notice of such increase was received by ROCKWELL,
provided that ROCKWELL notifies NETSPEAK upon receipt of notice of such increase
which End User/Agent orders and/or proposals are outstanding, and provided
further that ROCKWELL places all orders to NETSPEAK resulting from such
outstanding orders and/or proposals within 90 days of the date notice of such
increase was received by ROCKWELL.
8.2 MOST FAVORED CUSTOMER. NETSPEAK represents that the charges, fees, costs,
and discounts set forth in this Agreement are no less favorable to ROCKWELL than
the most favorable terms given to any other distributor or like type of
strategic alliance with like quantities and commitments and with similar terms
and conditions entered into by NETSPEAK as of the Effective Date of this
Agreement. If, during the term of this Agreement, NETSPEAK, in its sales to
other End User/Agents, reduces prices for like quantities of the same or
essentially the same component or materials or labor embodied in the NETSPEAK
Product under similar terms and conditions to a level below the prices
established by this Agreement and detailed in Exhibit A, then NetSpeak will
immediately adjust its price(s) to ROCKWELL for any open or future orders to
equal the levels charged to such other customer(s) providing ROCKWELL's
purchases represent similar terms, quantities, and conditions.
8.3 DISCOUNTS. NETSPEAK agrees that sales and licenses of NETSPEAK Products to
ROCKWELL shall be at the "ROCKWELL Purchase Price" as detailed in Exhibit A.
NETSPEAK agrees to explore and identify cost reduction opportunities in the
Products provided. Any cost savings generated by NETSPEAK shall be shared in a
reduction in the unit price of the Product supplied under this Agreement,
effective at a mutually agreed upon time.
8.4 PAYMENT TERMS. Payment terms for the NETSPEAK products shall be net fifty
(50) days after shipment of NETSPEAK Product.
8.5 MAINTENANCE RELEASES. Sets of NETSPEAK Product Documentation and software
media for all maintenance updates and releases will be provided by NETSPEAK
throughout the warranty and maintenance periods as set forth in Exhibits E and
F.
9. FIELD TESTING
Upon mutual agreement, NETSPEAK and ROCKWELL may jointly conduct a field test of
the NETSPEAK Product for a ROCKWELL End User. NETSPEAK will provide reasonable
sales,
-9-
<PAGE>
engineering, and marketing support in a close technical working relationship
with ROCKWELL for up to 2 (two) designated customers.
10. SALES AND PRE-SALES SUPPORT
10.1 JOINT SALES PRESENTATIONS. NETSPEAK and ROCKWELL mutually agree that it may
be in the best interests of both parties to make joint presentations to End
User/Agent prospects. NETSPEAK and ROCKWELL agree that neither party will
unreasonably decline to support joint sales presentations. Each party shall be
responsible for its respective sales expenses. Any sales prospect for which
ROCKWELL requested joint sales effort shall not be solicited by NETSPEAK alone,
unless mutually agreed to in writing.
10.2 PRE-SALES SUPPORT. ROCKWELL shall provide primary pre-sales application,
engineering and configuration support for ROCKWELL Products. ROCKWELL shall to
the best of its ability pre-qualify prospective customers of NETSPEAK products,
and upon mutual agreement, NETSPEAK shall provide pre-sales support to ROCKWELL
at a place and time reasonably requested by ROCKWELL. As described herein, the
term pre-sales shall mean any systems engineering, configuration design,
technical application support related to customer evaluation of the NETSPEAK
product prior to submission of an order by a customer. NETSPEAK shall provide
and maintain a highly-trained and qualified pre-sales technical capability for
the primary purpose of technically configuring and presenting NETSPEAK solutions
to ROCKWELL customer. NETSPEAK shall prepare and submit quotations incorporating
final configurations and installation requirements to ROCKWELL's Sales Support
personnel for their approval prior to any submission of pricing and availability
to ROCKWELL's customer.
10.3 POST SALES SUPPORT. NETSPEAK shall provide tier 2 post-sales support to
ROCKWELL and maintain a customer support center for any NETSPEAK Products(s)
described in Exhibit A sold by ROCKWELL. The term "post-sales" shall mean any
activity related to delivery of warranty services or Product(s) support for
NetSpeak Product(s).
NETSPEAK will continue to provide the support service detailed in Exhibits E and
G for post-Warranty NETSPEAK Product services to all ROCKWELL End User/Agents
for which NETSPEAK has authorized an annual maintenance Contract. NETSPEAK will
provide said services as may be in effect and offered to its other Customers and
End User/Agents at the time of Contract.
11. ORDERING AND DELIVERY
11.1 FOB/RISK OF LOSS. Prices for the NETSPEAK Products are FOB Boca Raton, FL.
Risk of loss for all NETSPEAK Products sold shall pass from NETSPEAK to ROCKWELL
upon delivery of the NETSPEAK Products to the designated freight carrier at the
FOB point.
11.2 DELIVERY PERIOD. NETSPEAK shall use its best commercially reasonable
efforts to deliver the NETSPEAK Product to ROCKWELL or its integrator, within
thirty (30) days of the date the order is accepted providing that such products
are substantially as forecasted.
-10-
<PAGE>
11.3 NETSPEAK PRODUCT CONFIGURATION & SUPPORT. NETSPEAK may modify the NETSPEAK
Product and availability as detailed in Exhibit A upon sixty (60) days prior
written notice to ROCKWELL. NETSPEAK shall provide support for any NETSPEAK
Product sold and installed under this Contract for a period of not less than
five (5) years from the Effective Date of the contract.
11.4 ORDERS. ROCKWELL may purchase NETSPEAK Products listed in Exhibit A during
the term of this Agreement by written purchase order. Any new product or
applications developed by NETSPEAK shall be added to Exhibit A by mutual written
consent of the parties. Each written order shall include (as a minimum): the
name of the Product(s) ordered; NETSPEAK Product code(s); price(s) net of the
then applicable discount; quantity(s); and, desired delivery date(s). All
purchase orders are subject to acceptance by NETSPEAK. ROCKWELL's order shall be
deemed to have been accepted unless NETSPEAK provides written notice of order
rejection within seven (7) business days after receipt of the ROCKWELL order by
NETSPEAK. ROCKWELL shall have no obligation to purchase any NETSPEAK Products
hereunder except to the extent as may be incorporated in written orders placed
subject to this Agreement. Cancellation or rescheduling of any order is subject
to a cancellation fee as specified in Exhibit D.
11.5 TERMS & CONDITIONS OF ORDER. All NETSPEAK Product(s) ordered by ROCKWELL
from NETSPEAK pursuant to this Agreement shall be subject solely to the
provisions of this Agreement and any other provisions in addition to or not
specifically covered by this Agreement shall be governed by ROCKWELL's standard
purchase order terms and conditions then in effect.
11.6 SHIPMENTS. All ordered NETSPEAK Product(s) shall be prepared for shipment
in accordance with NetSpeak's standard practices in a manner to assure the
NETSPEAK Product is not damaged in transit and shipped using a Rockwell approved
carrier listed in ROCKWELL's routing instructions. ROCKWELL shall pay all
freight costs, however, no shipments will be insured unless specific written
instructions are issued by ROCKWELL prior to shipment.
11.7 INSTALLATION. Upon shipment of Products from NETSPEAK's facility, ROCKWELL
agrees to assume full responsibility for project management, system programming,
equipment integration, installation and maintenance. NETSPEAK agrees to provide
Training as specified on the Rockwell Purchase Order issued to NETSPEAK.
11.8 PERMITS & APPROVALS. NETSPEAK agrees to determine the permits and approvals
necessary to import, export, buy, sell and maintain the NETSPEAK Product in a
country for which NETSPEAK Product is not approved at the time a marketing
opportunity may present itself. Upon agreement by ROCKWELL and NETSPEAK that it
is in the best interest of both parties to do so, NetSpeak shall, at its own
expense, obtain all necessary governmental permits and approvals necessary for
ROCKWELL to import, export, buy, sell and maintain the NETSPEAK Product or
otherwise fully perform its obligations under this Agreement. ROCKWELL agrees to
provide as much advance notice as possible to NETSPEAK with regard to new
countries into which Rockwell intends to market the NETSPEAK Product and to work
with NETSPEAK to obtain required approvals.
-11-
<PAGE>
12. WARRANTY
12.1 PRODUCT LICENSE. NETSPEAK warrants that ROCKWELL or its End User/Agent, as
the case may be, shall acquire a license to the NETSPEAK Product(s) (software)
purchased free and clear of all encumbrances.
12.2 LIENS & INFRINGEMENTS. NETSPEAK warrants that it has and will guarantee to
Rockwell or its End User/Agent, the right, title, and interest to license the
NETSPEAK Products free of all liens and encumbrances, and that the NETSPEAK
Products or any part thereof, do not infringe on any third party intellectual
property interest. If at any time NETSPEAK shall incur any indebtedness that has
become a lien upon such NETSPEAK Products or any part thereof or which may
become a claim against ROCKWELL, NETSPEAK shall immediately pay such claim or
indebtedness, or cause such lien to be released and discharged by giving bond or
otherwise at NETSPEAK's sole expense.
12.3 LIMITATIONS. Except as expressly provided in this Agreement, all WARRANTIES
shall be void as to any NETSPEAK Product damaged or rendered unserviceable by:
improper or inadequate maintenance by anyone other than NETSPEAK; unauthorized
modifications or physical or electrical abuse to the NETSPEAK Product by anyone
other than NETSPEAK; unreasonable refusal to comply with engineering change
notice programs; negligence by other than NETSPEAK or NETSPEAK's
representative(s); theft; water or other perils; damage caused by containment
and/or operation outside the environmental specifications; and, alteration or
connection of the NETSPEAK Product to other machines, equipment, or devices
(other than NetSpeak's approved devices) without the prior written approval of
NETSPEAK.
13. INDEMNIFICATION
13.1 NEGLIGENCE INDEMNIFICATION. Each party (the "Indemnitor") hereby
indemnifies and holds the other party (the "Indemnitee"), its directors,
officers, agents and employees harmless against any and all claims, actions and
damages, liabilities or expenses, including attorney's fees and other legal
costs for injury to or death to any person, and for loss of or damage to any and
all property arising out of the negligent acts or omissions of the Indemnitor
under this Agreement.
13.2 INTELLECTUAL PROPERTY INDEMNIFICATION. NETSPEAK shall defend, at its
expense, any claim against ROCKWELL alleging that the NETSPEAK Product, or any
part thereof, infringes any patent, copyright, trademark, trade name, trade
secret, mask work, or other intellectual property interest in any country and
shall pay all costs and damages awarded, provided that NETSPEAK is promptly
informed in writing and furnished with a copy of each communication, notice, or
other action relating to the alleged infringement and is given authority,
information, and assistance necessary to defend or settle such claim. If an
injunction against Rockwell's use, sale, lease, license, other distribution of
the NETSPEAK Product, or any part thereof, results from such a claim (or if
ROCKWELL reasonably believes such an injunction is likely), NETSPEAK shall, at
its option, (and in addition to NETSPEAK's other obligations
-12-
<PAGE>
hereunder) (i) procure for ROCKWELL the right to continue using, selling,
leasing, or licensing the NETSPEAK Product or part thereof; (ii) replace such
NETSPEAK Product or part thereof with non-infringing substitutes otherwise
complying substantially with all the requirements of this Agreement; or (iii)
credit the purchase price, less a charge equal to one-thirty-sixth (1/36) of the
purchase price of the NETSPEAK Product for each month that ROCKWELL enjoyed
beneficial use, and accept the return of such equipment. Any unused and unopened
stock may be returned for full credit. The provisions of this section shall not
apply to any claim for infringement resulting solely from NETSPEAK's compliance
with ROCKWELL's detailed design specifications, where provided. THIS SECTION
13.2 STATES THE SOLE AND EXCLUSIVE LIABILITY OF THE PARTIES TO THIS AGREEMENT
FOR PATENT, COPYRIGHT, TRADE SECRET, OR OTHER PROPRIETARY RIGHTS INFRINGEMENT
AND IS IN LIEU OF ALL CONDITIONS OR WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY,
IN REGARD THERETO.
14. TRAINING AND DOCUMENTATION
14.1 TRAINING. NETSPEAK will provide training courses and training development
support as described in Exhibit C.
14.2 TRAINING MATERIALS. NETSPEAK shall provide ROCKWELL, at no cost to
ROCKWELL, with a reproducible copy of any NETSPEAK developed training
documentation and materials for the NETSPEAK Products in electronic format for
ROCKWELL's internal training purposes only, during the term of this Agreement.
14.3 DOCUMENTATION. NETSPEAK shall provide complete, reproducible documentation
sets for each Customer sale including Standard and Custom Developed Product
Specifications, Users Manuals, Installation and Support Manuals, and any other
information required to allow SSD to install the NETSPEAK Product and to allow
SSD to provide fully functional technical support to its Customers.
15. TERMINATION
15.1 BANKRUPTCY. Either party shall have the right to terminate this Agreement
immediately upon written notice in the event either party files or has filed
against it any bankruptcy or similar proceedings or enters into any form of
arrangement with and/or for the benefit of its creditors.
15.2 BREACH. In the event either party materially breaches this Agreement, the
non-breaching party may provide written notice of such breach to the other
party. Should the party asserted to be in breach fail to cure such breach within
a period of sixty (60) days from the date of such notice, the non-breaching
party shall have the right to terminate this Agreement immediately upon written
notice to the other party. In addition, if one party commits three (3) or more
material breaches of this Agreement the non-breaching party shall have the right
to terminate this Agreement immediately upon written notice to the breaching
party.
-13-
<PAGE>
15.3 EFFECT OF TERMINATION. Upon the termination or expiration of this
Agreement: (i) each party will return to the other party all of the Confidential
Information received hereunder in such party's possession or control; (ii) in
the event of a Breach, all unshipped orders will automatically be canceled; and
(iii) NETSPEAK will have the option, in its sole discretion of electing to offer
support for ROCKWELL's End User/Agents or permitting ROCKWELL to continue to
provide maintenance and support for the NETSPEAK Products to the extent needed
to provide such services pursuant to a written agreement to be promptly executed
by the parties allowing ROCKWELL to purchase and license the NETSPEAK Software
only for the purpose of providing such services.
16. CONFIDENTIALITY
NETSPEAK and ROCKWELL will from time to time each disclose to the other
information deemed to be confidential or proprietary ("Confidential
Information"). Such Confidential Information may include but is not limited to,
equipment specifications, design parameters, technical data, planned production
rates, manufacturing technology, customer lists (or portions thereof), and
information pertaining to the Product(s) of the parties. Such Confidential
Information shall be protected by the receiving party in the same manner and
with the same degree of care that such party accords its own confidential or
proprietary information for a period of not less than five (5) years after the
intended expiration of this Agreement. Neither party shall disclose any
information which is confidential or proprietary without the advance written
consent of the other, nor use such information for its own account (except in
connection with this Agreement), until and unless such information:
(i) is lawfully disclosed in such manner as is not a
breach of this Section;
(ii) is otherwise available in the public domain;
(iii) is released from the restrictions imposed in this
Section by written consent of the disclosing party;
(iv) shall be established to have been lawfully known to
the receiving party prior to receipt of such
information from the disclosing party;
(v) is previously and independently developed by the
receiving party, which the receiving party can prove
with written evidence;
(vi) is required to be released by law or such order of a
governmental agency or a court of law or equity.
EACH PARTY ACKNOWLEDGE THAT THE CONFIDENTIAL INFORMATION CONTAINS TRADE SECRETS
OF THE OTHER PARTY, THE DISCLOSURE OF WHICH WOULD CAUSE SUBSTANTIAL HARM TO SUCH
OTHER PARTY THAT COULD NOT BE REMEDIED BY THE PAYMENT OF DAMAGES ALONE.
-14-
<PAGE>
ACCORDINGLY, EACH PARTY WILL BE ENTITLED TO PRELIMINARY AND PERMANENT INJUNCTIVE
RELIEF AND OTHER EQUITABLE RELIEF FOR ANY BREACH OF THIS SECTION 16.
17. ESCROW
NETSPEAK & ROCKWELL agree to complete the definition and final terms for
entering into an ESCROW Agreement, within 30 days of Effective Date of this
Agreement.
18. CUSTOM APPLICATIONS AND CONSULTING
For custom software application services developed by NETSPEAK, on behalf of a
ROCKWELL customer order, NETSPEAK shall provide the same quality of
documentation normally developed to support its own customers and a copy of the
software to ROCKWELL, which will enable ROCKWELL to support its customer, if
required.
18.1 ROCKWELL at its option, may provide similar custom application services to
ROCKWELL's customers and will also be responsible for any documentation and
support required.
19. LIMITED LIABILITY
19.1 DAMAGES AND LOST PROFITS
REGARDLESS WHETHER ANY REMEDY SET FORTH HEREIN OR IN NETSPEAK'S LIMITED WARRANTY
ACCOMPANYING DELIVERY OF NETSPEAK PRODUCTS FAILS OF ITS ESSENTIAL PURPOSE OR
OTHERWISE, NETSPEAK WILL NOT BE LIABLE FOR ANY LOST PROFITS OR FOR ANY DIRECT,
INDIRECT, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR OTHER SPECIAL DAMAGES SUFFERED
BY ROCKWELL, ITS END USER/AGENTS OR OTHERS ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE NETSPEAK PRODUCTS, FOR ALL CAUSES OF ACTION OF ANY KIND
(INCLUDING TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, AND BREACH OF WARRANTY)
EVEN IF NETSPEAK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
19.2 CUMULATIVE LIABILITY
EXCEPT FOR LIABILITY FOR PERSONAL INJURY OR PROPERTY DAMAGE ARISING FROM
NETSPEAK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IN NO EVENT WILL NETSPEAK'S
TOTAL CUMULATIVE LIABILITY IN CONNECTION WITH THIS AGREEMENT OR NETSPEAK
PRODUCTS, FROM ALL CAUSES OF ACTION OF ANY KIND, INCLUDING TORT, CONTRACT,
NEGLIGENCE, STRICT LIABILITY AND BREACH OF WARRANTY, EXCEED THE PRECEDING 12
MONTH DOLLAR VOLUME PURCHASED BY ROCKWELL.
-15-
<PAGE>
20. GENERAL TERMS
20.1 COMPLIANCE WITH LAWS & RULES. In all of their respective operations related
to this Agreement, the parties shall comply with all applicable federal, state,
and local laws, rules, and regulations, including but not limited to export
control laws. Each party also agrees to indemnify and hold harmless the other
party from any and all damages and liabilities assessed against the other party
as a result of party's non-compliance therewith. Any permission required to be
included herein shall be deemed included as a part of this Agreement whether or
not specifically referenced.
20.2 GOVERNING LAW. This Agreement and any Purchase Order(s) issued hereunder
shall be governed by and interpreted in accordance with the laws of Illinois.
20.3 CONTINUED PERFORMANCE. Any dispute arising under this Agreement which is
not resolved by NETSPEAK and ROCKWELL shall be decided by a court of law under
the terms of this Section. Pending settlement of the final decision by the
court, each party shall proceed diligently with the performance of the Agreement
in accordance with the other party's direction.
20.4 TAXES, DUTIES, & FEES. All amounts payable under this Agreement are
exclusive of all sales, use, value-added, withholding, and other taxes and
duties. ROCKWELL shall be responsible for the payment of, and shall indemnify
and hold harmless NETSPEAK from, any and all such taxes, duties, customs
charges, or other costs or charges of any nature arising in any manner out of
the sale, use, storage, or delivery of the NETSPEAK Product(s), except taxes
based upon the income of NETSPEAK. NETSPEAK will be promptly reimbursed by
ROCKWELL for any and all taxes or duties that NETSPEAK may be required to pay in
connection with this Agreement or its performance.
20.5 WAIVER. No waiver by either party of any default or breach by the other
party of any of the provisions hereof shall constitute a waiver of any prior or
subsequent default or breach hereunder.
20.6 FORCE MAJEURE. Neither party shall be liable for failure to perform any of
its obligations under this Agreement during any period in which such party
cannot perform due to matters beyond their control, including, but not limited
to, labor disputes, strike, fire, flood, or other natural disaster, war,
embargo, or riot provided that the party so delayed immediately notifies the
other party of such delay. If NETSPEAK's performance is delayed for these
reasons for a consecutive period of sixty (60) days or more, ROCKWELL may
terminate this Agreement and/or any Purchase Order hereunder by giving NETSPEAK
written notice, which termination shall become effective upon receipt of such
notice. If ROCKWELL terminates, its sole liability under this Agreement or any
Purchase Orders issued hereunder will be to pay any balances due for conforming
Product(s): (a.) delivered by NETSPEAK before receipt of ROCKWELL's termination
notice; and, (b.) ordered by Rockwell for delivery and actually delivered within
fifteen (15) days after receipt of Rockwell's termination notice.
-16-
<PAGE>
20.7 CONFLICT IN TERMS. If any conflict arises with the terms and conditions in
the exhibits or attachments to his document, the terms and conditions contained
within the body of this Distributor Agreement will prevail.
20.8 NOTICES. Any notices under this Agreement shall be sent in writing to the
parties at their following addresses, by registered mail, provided either party
may change such address by providing notice of same to the other party:
For NETSPEAK:
NETSPEAK CORPORATION,
902 Clint Moore Road
Suite 104
Boca Raton, FL 33487
Telephone: 561-997-4001 / Facsimile: 561-997-2401
FOR ROCKWELL:
ROCKWELL INTERNATIONAL CORPORATION
300 Bauman Court
PO Box 8007
Wood Dale, IL 60191-1121
Attn: Strategic Procurement & Product Integration
Telephone: 708-960-8536 / Facsimile: 708-769-1641
20.9 VALIDITY. If any provision of this Agreement shall be rendered invalid,
then such invalidity shall not affect the remainder of this Agreement which
shall remain in full force and effect.
20.10 EXHIBITS. The Exhibits attached hereto are incorporated into this
Agreement by reference and made a part of this Agreement as though they were
recited herein in their entirety.
20.11 SURVIVAL.
The provisions of Sections I (Sole and Entire Agreement), 3.2 (Nature of
Agreement), 7 (Trade Names, Trademarks, and Private Labels), 12 (Warranty), 13
(Indemnification), 16 (Confidentiality), 17 (Escrow), 19 (Limited Liability), 20
(General), and this Section 21 (Survival) shall survive termination or
expiration of this Agreement.
-17-
<PAGE>
IN CONSIDERATION of the mutual covenants and conditions herein set forth, the
parties have executed this Agreement as of the day and year written below.
NETSPEAK CORPORATION ROCKWELL INTERNATIONAL CORP.
By: /S/ ROBERT KENNEDY By: /S/ MARK J. POWER
-------------------- -------------------
Typed Name: ROBERT KENNEDY Typed Name: MARK J. POWER
Title: PRESIDENT Title: Senior Manager, Strategic
Procurement
Date: 1/31/97 Date: 1/29/97
-18-
EXHIBIT 11
NETSPEAK CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET LOSS PER SHARE
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Net loss .................................................................. $(2,865,704)
============
Weighted average Common Stock outstanding during the year ended
December 31, 1996 ......................................................... 7,018,805
Effect of shares issued within 12 months of the initial public offering ... 679,727
Effect of options granted within 12 months of the initial public offering,
using the treasury stock method .......................................... 251,361
Effect of warrants granted within 12 months of the initial public offering,
using the treasury stock method .......................................... 267,258
------------
Shares used in computing net loss per share .............................. 8,217,151
============
Net loss per share ......................................................... $ (0.35)
============
</TABLE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to the Registration Statement
of NetSpeak Corporation on Form S-1 (File No. 333-22123) of our report dated
January 24, 1997 (March 26, 1997 as to the sixth paragraph of Note 3), appearing
in the Prospectus, which is part of this Registration Statement, and to the
references to us under the headings "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Fort Lauderdale, Florida
April 8, 1997
EXHIBIT 23.3
CONSENT OF DIRECTOR NOMINEE
THE UNDERSIGNED, a nominee for director of NetSpeak Corporation, a
Florida corporation (the "Company"), hereby (i) consents to being nominated for
the position of director of the Company and to serve as such if elected,
effective upon completion of the Company's initial public offering of its Common
Stock (the "Offering"), and (ii) consents to being named as a director nominee
in the Company's Registration Statement on Form S-1 relating to the Offering,
and in the Prospectus contained therein proposed to be circulated in connection
with the Offering, and all amendments thereto.
EXECUTED, as of this 27th day of March, 1997.
/S/ MICHAEL B. GOLDBERG
-----------------------
Michael B. Goldberg
