AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 27, 1997
REGISTRATION STATEMENT NO. 333-22123
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
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. [X]
--------------
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 ............... Facing Page of the Registration
Statement; Cross Reference Sheet
and Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus .................................. Inside Front Cover Page and Outside
Back Cover Page
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
Matters ............................................ Outside Front Cover Page;
Prospectus Summary; Dividend 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 ........................ *
<FN>
- ----------------
* Not applicable or answer thereto is negative
</FN>
</TABLE>
<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 MAY 27, 1997
PROSPECTUS
- --------------------------------------------------------------------
2,000,000 SHARES
[NETSPEAK 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 $7.50 and $9.50 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's Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"NSPK."
ACT Networks, Inc. has indicated to the Company that it has an interest in
purchasing $2,000,000 of Common Stock in this Offering, see "BUSINESS."
- --------------------------------------------------------------------
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.
- --------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNTS(1) COMPANY(2)
Per Share ...... $ $ $
Total(3) ...... $ $ $
- --------------------------------------------------------------------
(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."
<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 2,382,500 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 May 1997, the Company entered into a Technology Development and License
Agreement with ACT Networks, Inc. ("ACT"), an industry-leading provider of WAN
access products which utilize frame relay systems to integrate voice, data and
facsimile communications. Under the agreement, the Company will adapt certain of
its software modules to execute on ACT's hardware products. In addition, the
Company granted ACT a license to distribute a variety of the Company's products
to ACT customers and ACT will integrate their respective technologies into a
bundled solution to be distributed and marketed by both the Company and ACT. The
Company has entered into a related agreement pursuant to which ACT has indicated
that it has an interest in purchasing $2,000,000 of Common Stock in this
Offering. At an assumed offering price of $8.50 per share this would equate to
235,294 shares or approximately 12% of the shares of Common Stock offered
hereby.
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.
In April 1997, the Company entered into a non-binding memorandum of
understanding with Fujitsu Business Communication Systems ("Fujitsu"). In May
1997, the Company completed negotiation of, but has not executed, an original
equipment manufacturer ("OEM") agreement, pursuant to which Fujitsu will
integrate, distribute and resell the Company's products to Fujitsu customers and
undertake joint development efforts with the Company.
In March 1997, the Company entered into a non-binding memorandum of
understanding with Telstra R&D Management Pty, Ltd. ("TRDM"), a subsidiary of
Telstra Corporation Ltd. ("TCL"), the Australian telecommunications carrier. In
May 1997, the Company completed negotiation of, but has not yet executed, a
development and marketing agreement pursuant to which the Company and TRDM
intend to integrate their respective existing technologies into a product which
facilitates increased call completion rates for telecommunications carriers. The
jointly developed product is intended to be marketed by both the Company and
TRDM to other telecommunications carriers, including TCL.
MCI Communications Corp. ("MCI"), one of the nation's largest long-distance
carriers, has initially licensed and used limited quantities of the Company's
products in MCI's new VAULT technology, designed to bridge traditional telephone
networks with packetized data networks such as the Internet. MCI has
subsequently selected the Company as one of its suppliers for components of its
VAULT technology products and services, and is currently negotiating a volume
software license agreement with the Company. The Company intends to establish
additional strategic alliances.
4
<PAGE>
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 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.
THE OFFERING
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<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 Nasdaq National Market symbol ...... "NSPK."
<FN>
- ----------------
(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 granted under the 1995 Plan to purchase 2,263,500
shares of Common Stock at exercise prices ranging from $1.00 to $7.00 per
share and 119,000 shares of Common Stock at an exercise price equal to the
price per share in this Offering.
</FN>
</TABLE>
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR(1) SUCCESSOR(1)
------------------ ------------------------------------------------------------------
THREE MONTHS
MAY 15, 1995 DECEMBER 8, 1995 YEAR ENDED ENDED MARCH 31,
TO DECEMBER 18, TO DECEMBER 31, DECEMBER 31, -----------------------------
1995 1995 1996 1996 1997
------------------ ------------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ..................... $ - $ - $ 867,117 $ 90,681 $ 903,766
Total operating expenses ......... 180,682 642,483 3,861,917 508,471 1,902,208
Loss from operations ............ (180,682) (642,483) (2,994,800) (417,790) (998,442)
Net loss ........................ (180,682) (642,483) (2,865,704) (400,367) (984,935)
Net loss per share ............... $ (.35) $ (0.05) $ (0.12)
Shares used in computing net loss
per share(2) .................. 8,176,833 8,176,833 8,176,833
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR(1)
MARCH 31, 1997
----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
----------- ------------ -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ............................................. $4,869,565 $7,360,268 $22,469,168
Working capital ...................................................... 2,711,290 5,201,993 20,560,893
Total assets ......................................................... 7,411,244 9,901,947 24,711,947
Shareholders' equity ................................................... 4,693,968 7,184,671 22,244,671
<FN>
- ----------------
(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
March 31, 1997 and for the period from December 8, 1995 (inception) to
December 31, 1995, for the year ended December 31, 1996 and the three months
ended March 31, 1996 and 1997.
(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 the 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 $8.50 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
</FN>
</TABLE>
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 March 31, 1997, the Company had an accumulated net loss of
$4,493,122. 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, one of the
Company's strategic partners, accounted for approximately 44% and 76% of the
Company's net revenues during the year ended December 31, 1996 and for the three
months ended March 31, 1997, respectively. There can be no assurance that any
strategic partner 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
8
<PAGE>
on other key personel. The loss of the services of any of its executive officers
or other key employees 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 $17,000,000 or an assumed
initial public offering price of $8.50 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 $7.13 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, eight 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 will not have a material effect on the
Company's financial position or results of operations. In addition, in May 1997,
the Company received a letter from e-Net, Inc. ("e-Net") alleging that the
Company's WebPhone product infringes U.S. Patent No. 5,526,353 owned by e-Net.
Although there can be no assurance of the outcome of this uncertainty, following
an analysis of the subject contents and the WebPhone product, management
believes the allegations are without merit and that any potential liability
related to e-Net's allegations will not have a material effect on the Company's
financial position or results of operations.
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
9
<PAGE>
unpatented trade secrets which are difficult to protect. 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 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 59 employees at March 31, 1997. 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 March 31, 1997 would have been equal to $6.31 per share (or 74%) at
an assumed initial public offering price of $8.50 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 Common Stock has been approved for listing on the Nasdaq National Market,
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 7,434,842 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, 6,981,987 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 one year from the
consummation of this Offering. The 716,545 shares of Common Stock not subject to
the nine month restriction on sale described above will be eligible for sale
subject to the volume limitations of Rule 144 commencing 90 days after the date
of this Prospectus.
As of the date of this Prospectus, options to purchase 2,382,500 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
$8.50 per share are estimated to be approximately $15,060,000 ($17,431,500 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
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<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 March 31, 1997, the net tangible book value of the Company was
$4,693,968 or $0.61 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 $8.50 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 March 31, 1997 would have
been $22,244,671 or $2.19 per share. This represents an immediate increase in
net tangible book value of $1.58 per share to existing shareholders and an
immediate dilution of $6.31 per share to investors in the Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price .............................. $8.50
Net tangible book value per share at March 31, 1997 ............... $0.61
Increase attributable to exercise of Motorola Warrant ............... 0.27
Increase attributable to new investors(1) ........................ 1.31
------
Pro forma net tangible book value per share after the offering ...... 2.19
------
Dilution to new investors(2) ....................................... $6.31
======
</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 $2.36,
which would result in dilution to new investors in this Offering of $6.14 per
share of Common Stock.
The following table shows, at March 31, 1997, 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 $8.50 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 31% $1.13
Exercise of Motorola Warrant ...... 452,855 4% 2,490,703 9% 5.50
New Investors(1) .................. 2,000,000 20% 17,000,000 60% 8.50
----------- ---- ----------- ---- ------
Total(2) ........................ 10,151,387 100% $28,199,407 100%
=========== ==== =========== ====
<FN>
- ----------------
(1) Includes 235,294 shares of Common Stock in which ACT has indicated an
interest in purchasing in this Offering. See "Business-Strategic Alliances."
(2) 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 granted under the
1995 Plan to purchase 2,263,500 shares of Common Stock at exercise prices
ranging from $1.00 to $7.00 per share and 119,000 shares of Common Stock at
an exercise price equal to the price per share in this Offering.
</FN>
</TABLE>
14
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1997, (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 $8.50 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>
MARCH 31, 1997
--------------------------------------------------
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 26,636,279
Accumulated deficit ....................................... (4,493,122) (4,493,122) (4,493,122)
----------- ----------- -----------
Total stockholders' equity .............................. $ 4,693,968 $ 7,184,671 $22,244,671
=========== =========== ===========
<FN>
- ----------------
(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 granted under the
1995 Plan to purchase 2,263,500 shares of Common Stock at exercise prices
ranging from $1.00 to $7.00 per share and 119,000 shares of Common Stock at
an exercise price equal to the price per share in this Offering.
</FN>
</TABLE>
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 statement of operations data for the three months ended March 31, 1996
and 1997 and the selected actual balance sheet data as of March 31, 1997 set
forth below have been derived from the Company's unaudited interim consolidated
financial statements, included elsewhere in this Prospectus, which in the
opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial position
and results of operations for the periods presented. 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)
------------------ --------------------------------------------------------------
THREE MONTHS
MAY 15, 1995 DECEMBER 8, 1995 YEAR ENDED ENDED MARCH 31,
TO DECEMBER 18, TO DECEMBER 31, DECEMBER 31, ---------------------------
1995 1995 1996 1996 1997
------------------ ------------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ................................. $ - $ - $ 867,117 $ 90,681 $ 903,766
Operating expenses:
Cost of revenues ........................... - - 47,129 3,752 43,522
Research and development .................. 175,038 28,301 2,255,644 327,947 1,147,402
Sales and marketing ........................ - - 722,353 91,604 399,185
General and administrative .................. 5,644 57,200 836,791 85,168 312,099
Purchased research and development(2) ...... - 556,982 - - -
--------- --------- ----------- --------- ---------
Total operating expenses .................. 180,682 642,483 3,861,917 508,471 1,902,208
Loss from operations ........................ (180,682) (642,483) (2,994,800) (417,790) (998,442)
Interest and other income .................. - - 172,096 17,423 57,317
--------- --------- ----------- --------- ---------
Loss before income taxes ..................... (180,682) (642,483) (2,822,704) (400,367) (941,125)
Income taxes ................................. - - 43,000 - 43,810
--------- --------- ----------- --------- ---------
Net loss .................................... $(180,682) $(642,483) $(2,865,704) $(400,367) $(984,935)
========= ========= =========== ========= =========
Net loss per share ........................... $ (0.35) $ (0.05) $ (0.12)
=========== ========= =========
Shares used in computing net loss per share(3) 8,176,833 8,176,833 8,176,833
=========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR(1)
--------------------------------------------------------
DECEMBER 31, MARCH 31, 1997
---------------------------- -------------------------
1995 1996 ACTUAL PRO FORMA(4)
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......................................... $483,084 $6,294,697 $4,869,565 $7,360,268
Working capital ................................................... 390,868 4,303,825 2,711,290 5,201,993
Total assets ...................................................... 555,566 8,277,615 7,411,244 9,901,947
Shareholders' equity ............................................. 447,517 5,678,903 4,693,968 7,184,671
<FN>
- ----------------
(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 March 31, 1997 and for the period from
December 8, 1995 (inception) to December 31, 1995, for the year ended
December 31, 1996 and the three months ended March 31, 1996 and 1997.
(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.
</FN>
</TABLE>
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 March 31, 1997, the Company
had an accumulated net loss of $4,493,122. 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
THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1996 AND THE 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 three months ended March 31, 1997 were $903,766 as
compared to $90,681 for the three months ended March 31, 1996. The increase in
net revenues was primarily due to fees for engineering services 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. Net revenues for the year ended December 31 1996 were $867,117.
The Company had no revenues during 1995 when its initial products were in the
process of development. Net revenues during 1996 were primarily generated from
license fees from Creative and license fees paid by individual client software
end-users. Creative, the Company's largest customer, accounted for 76% of net
revenues for the three months ended March 31, 1997 and 44% of net revenues for
the year ended December 31, 1996; Creative is expected to continue to be one of
the Company's largest customers in the near future. As of March 31, 1997, the
Company had unearned revenue of $1,596,376 of which approximately
17
<PAGE>
$1,215,000 represents the advance payments for product licenses and maintenance
agreements, and approximately $320,000 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."
Cost of revenues primarily consist of direct product costs, costs of
engineering services and certain costs associated with providing customer
support. Cost of revenues for the three months ended March 31, 1997 was $43,522
as compared to $3,752 for the three months ended March 31, 1996. The increase in
cost of revenues was primarily due to costs associated with providing
engineering services. Cost of revenues was $47,129 for the year ended December
31, 1996. The Company had no cost of revenues during 1995. The Company may
resell third party computer hardware and software platforms with its gateway
products and business systems, but it anticipates that such amounts will not
become a significant portion of the Company's sales mix. As a result, the
Company anticipates that cost of revenues will continue to remain relatively
consistent as a percentage of net revenues as the Company's sales mix is
comprised primarily of software based products. Should the Company begin to sell
a significant amount of third party computer platforms or elect to manufacture
and sell certain specialized computer hardware components that it is currently
designing, cost of revenues would increase as a percentage of net revenues.
Research and development expenses primarily consist of employee
compensation, computer hardware and software utilized in product development,
and equipment depreciation. Research and development expenses for the three
months ended March 31, 1997 were $1,147,402 as compared to $327,947 for the
three months ended March 31, 1996. Research and development expenses were
$2,255,644 for the year ended December 31, 1996 and $203,339 during 1995. The
increases in research and development expenses were primarily the result of an
increase in employee compensation due to the expansion of the engineering staff
to 29 employees at March 31, 1997 from 10 employees at March 31, 1996. The
Company also provided incentive bonuses to the engineering staff during the
three months ended March 31, 1997 in order to expedite the development of
certain of its products. All research and development costs have been expensed
as incurred. Although research and development for the Company's initial
gateways products and business systems was substantially completed by March 31,
1997, the Company intends to 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 expenses 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 in 1995. See Note 2 to the
consolidated financial statements.
Sales and marketing expenses primarily consist of employee compensation,
travel expenses, trade shows and the costs of promotional materials. Sales and
marketing expenses for the three months ended March 31, 1997 were $399,185 as
compared to $91,604 for the three months ended March 31, 1996. Sales and
marketing expenses were $722,353 for the year ended December 31, 1996. The
Company had no sales and marketing expenses during 1995. The increases in sales
and marketing expenses were primarily due to the creation and expansion of the
Company's sales and marketing department through the addition of sales,
marketing and customer support personnel to 22 employees at March 31, 1997 from
15 employees at March 31, 1996. The Company has also continuously expanded its
promotional and marketing activities of its products and systems. The Company
intends to continue to intensify and expand its sales and marketing efforts and,
as a result, intends to significantly increase sales and marketing expenses in
future periods.
General and administrative expenses for the three months ended March 31,
1997 were $312,099 as compared to $85,168 for the three months ended March 31,
1996. General and administrative expenses were $836,791 for the year ended
December 31, 1996 and $62,844 during 1995. The increases in general and
administrative expenses were due to the addition of finance and administrative
personnel, professional services primarily associated with filing patent
applications and office expenses as a result of the expansion of the Company's
corporate infrastructure. The Company intends to increase general and
administrative expenses in future periods in order to continue to expand its
infrastructure.
18
<PAGE>
Income taxes for the three months ended March 31, 1997 and the year ended
December 31, 1996 were $43,810 and $43,000, respectively. Such taxes were the
result of income taxes paid to the Singapore government related to license fees
received pursuant to the agreement with Creative. The Company paid no income
taxes for the three months ended March 31, 1996 and 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 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 March 31, 1997, the Company had $4,869,565 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 used in operating activities during the three months ended March
31, 1997 was $999,130 and was primarily related to continued research and
development and the expansion of the Company's sales, marketing, finance and
administrative infrastructure. Included in accounts receivable at March 31, 1997
was $117,000 primarily related to license fees from Creative.
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 was $300,000 related to
license fees from Creative.
Net cash used for investing activities during the three months ended March
31, 1997 and the year ended December 31, 1996 was $377,102 and $1,216,834,
respectively. The expenditures primarily related to purchases of computer
equipment.
Net cash provided by financing activities from inception (December 8, 1995)
to March 31, 1997 was $8,652,090 and was attributable to private offerings of
equity securities, including $590,000 in the initial capitalization of the
Company. Additionally, the Company has paid $48,900 in costs related to this
Offering.
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 a 21 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
19
<PAGE>
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."
20
<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 May 1997, the Company entered into a Technology Development and License
Agreement with ACT, an industry-leading provider of WAN access products which
utilize frame relay systems to integrate voice, data and facsimile
communications. Under the agreement, the Company will adapt certain of its
software modules to execute on ACT's hardware products. In addition, the Company
granted ACT a license to distribute a variety of the Company's products to ACT
customers and ACT will integrate their respective technologies into a bundled
solution to be distributed and marketed by both the Company and ACT. The Company
has entered into a related agreement pursuant to which ACT has indicated that it
has an interest in purchasing $2,000,000 of Common Stock in this Offering. At an
assumed offering price of $8.50 per share this would equate to 235,294 shares or
approximately 12% of the shares of Common Stock offered hereby.
21
<PAGE>
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'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, to enhance concurrent
voice and data transmission over the network.
In April 1997, the Company entered into a non-binding memorandum of
understanding with Fujitsu. In May 1997, the Company completed negotiation of,
but has not yet executed, an OEM agreement, pursuant to which Fujitsu will
integrate, distribute and resell the Company's products to Fujitsu customers and
undertake joint development efforts with the Company.
In March 1997, the Company entered into a non-binding memorandum of
understanding with TRDM, a subsidiary of TCL, the Australian telecommunications
carrier. In May 1997, the Company completed negotiation of, but has not yet
executed, a development and marketing agreement pursuant to which the Company
and TRDM intend to integrate their respective existing technologies into a
product which facilitates increased call completion rates for telecommunications
carriers. The jointly developed product is intended to be marketed by both the
Company and TRDM to other telecommunications carriers, including TCL.
MCI, one of the nation's largest long-distance carriers, has initially
licensed and used limited quantities of the Company's products in MCI's new
VAULT technology, designed to bridge traditional telephone networks with
packetized data networks such as the Internet. MCI has subsequently selected the
Company as one of its suppliers for components of its VAULT technology products
and services, and is currently negotiating a volume software license agreement
with the Company. The Company intends 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
22
<PAGE>
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 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.
23
<PAGE>
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
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
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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, ACT, Rockwell,
Infonet, Fujitsu, Telstra and MCI and intends to seek to establish additional
strategic alliances.
EXPAND INTERNAL MARKETING AND SALES EFFORTS
The Company has recently hired a Vice President of Sales and 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.
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
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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 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
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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.
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.
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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.
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".
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/Registered trademark/ 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.
ACT
In May 1997, the Company entered into a Technology Development and License
Agreement with ACT, an industry-leading provider of WAN access products which
utilize frame relay systems to integrate voice, data and facsimile
communications. Under the agreement, the Company will adapt certain of its
software modules to execute on ACT's hardware products. In addition, the Company
granted ACT a license to distribute a variety of the Company's products to ACT
customers and ACT will integrate their respective technologies into a bundled
solution to be distributed and marketed by both the Company and ACT. The Company
has entered into a related agreement pursuant to which ACT has indicated that it
has an interest in purchasing $2,000,000 of Common Stock in this Offering. At an
assumed offering price of $8.50 per share this would equate to 235,294 shares or
approximately 12% of the shares of Common Stock offered hereby.
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
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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.
FUJITSU
In April 1997, the Company entered into a non-binding memorandum of
understanding with Fujitsu. In May 1997, the Company completed negotiation of,
but has not yet executed, an OEM agreement pursuant to which Fujitsu will
integrate, distribute and resell the Company's products to Fujitsu customers and
undertake joint development efforts with the Company.
TELSTRA
In March 1997, the Company entered into a non-binding memorandum of
understanding with TRDM, a subsidiary of TCL, the Australian telecommunications
carrier. In May 1997, the Company completed negotiation of, but has not yet
executed, a development and marketing agreement pursuant to which the Company
and TRDM intend to integrate their respective existing technologies into a
product which facilitates increased call completion rates for telecommunications
carriers. The jointly developed product is intended to be marketed by both the
Company and TRDM to other telecommunications carriers, including TCL.
OTHER ALLIANCES
MCI, one of the nation's largest long-distance carriers, has initially
licensed and used limited quantities of the Company's products in MCI's new
VAULT technology, designed to bridge traditional telephone networks with
packetized data networks such as the Internet. MCI has subsequently selected the
Company as one of its suppliers for components of its VAULT technology products
and services, and is currently negotiating a volume software license agreement
with the Company. The Company intends to establish additional strategic
alliances.
The Company has entered into non-binding memorandums of understandings with
a number of other companies, including Siemens Stromberg-Carlson, Harris
Corporation, BellSouth Telecommunications, Inc. and Communicator InfoTech AB, a
Swedish communications company, pursuant to which the Company is pursuing
entering into OEM Agreements with each of these potential strategic partners.
These companies may seek to distribute the Company's technology, integrate the
Company's technology into products and systems of their own, and possibly
undertake to jointly develop new products with the Company. There can be no
assurances that such understandings will result in binding agreements. The
Company intends to establish additional strategic alliances.
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.
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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 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 March 31, 1997, 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
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from six software engineers as of December 31, 1995 to 29 software engineers and
support staff as of March 31, 1997. Research and development expenses were
approximately $1.1 million for the three months ended March 31, 1997 and
approximately $2.3 million and $200,000 in 1996 and 1995, respectively. All of
the Company's research and development costs have been expensed as incurred,
including purchased research and development of $556,982 in 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.
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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. utility patent applications,
eight 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 agreements with customers which require the
Company to place its source code in escrow. These agreements provide that
customers 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 31, 1997, the Company employed 59 persons, including 47 in
engineering and support and 12 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.
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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
Martin Shum ............... 48 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
33
<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. See "Certain Transactions." 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.
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.
MARTIN SHUM will become a director of the Company upon consummation of this
Offering, as the designee of ACT. See "Business-Strategic Alliances." Mr. Shum
founded ACT in May 1987 and has served as Chairman of the Board of Directors,
President and Chief Executive Officer since that time.
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
34
<PAGE>
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.
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 Assistant Secretary 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.
35
<PAGE>
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 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 --------------------------
GRANTED(#)(1) IN FISCAL YEAR ($/SH) DATE 5% 10%
---------------- ----------------- -------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen R. Cohen ...... 300,000 18.5 $2.50 1/24/06 $472,000 $1,195,000
Shane D. Mattaway ...... 100,000 6.2 2.50 1/24/06 157,000 398,000
<FN>
- ----------------
(1) Based upon the exercise price, which was equal to the fair market on the
date of grant, and annual appreciation at the rate stated on such price
through the expiration date of the options. Amounts represented hypothetical
gains that could be achieved for the options if exercised at the end of the
term. The assumed 5% and 10% rates of stock price appreciation are provided
in accordance with the rules of the Securities and Exchange Commission (the
"Commission") and do not represent the Company's estimate or projection of
the future stock price. Actual gains, if any, are contingent upon the
continued employment of the Named Executive Officer through the expiration
date, as well as being dependent upon the general performance of the Common
Stock. The potential realizable values have not taken into account amounts
required to be paid for federal income taxes.
</FN>
</TABLE>
36
<PAGE>
STOCK OPTIONS HELD AT END OF 1996
The following table indicates the total number and value of exercisable and
unexercisable stock options held by each of the Named Executive Officers as of
December 31, 1996. No options were exercised by any of the Named Executive
Officers during 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
--------------------------------- --------------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE(1)
-------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Stephen R. Cohen ...... 300,000 0 $1,800,000 0
Shane D. Mattaway ...... 250,000 0 1,725,000 0
- ----------------
(1) Based upon the assumed initial public offering price of $8.50 per share,
less the applicable exercise price.
</TABLE>
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.
37
<PAGE>
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 and 119,000 shares of Common Stock
at an exercise price equal to the price per share in this Offering. Of such
options, 1,012,500 are incentive stock options and 1,370,000 are non-statutory
stock options.
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.
38
<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-
Martin Shum(9) ..................... -0- -0- -0-
All directors and executive officers
as a group (nine persons)(10) ...... 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(11) ............ 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(12)
Glenn Hutton ........................ 500,000 6.1 4.9
9725 Hammock Boulevard
Suite 206
Miami, Florida 33196
<FN>
- ----------------
(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) Does not include the shares of Common Stock to be purchased by ACT in this
Offering, in which shares Mr. Shum disclaims beneficial ownership.
(10) 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.
(11) 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.
(12) Luis Gallego is the beneficial owner of these shares.
</FN>
</TABLE>
39
<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,
40
<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.
41
<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 Nasdaq National Market 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 7,434,842 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, 6,981,987 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 one year from the consummation of this Offering. The 716,545 shares of
Common Stock not subject to the nine month restriction on sale described above
will be eligible for sale subject to the volume limitations of Rule 144
commencing 90 days after the date of the Prospectus.
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.
42
<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 7,434,842 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
43
<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.
44
<PAGE>
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995 and 1996 and for the period December 8, 1995 (inception) to December 31,
1995 and the year ended December 31, 1996; and of Internet Telephone Company
for the period May 15, 1995 (inception) to December 18, 1995, 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.
45
<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
and March 31, 1997 (unaudited) ................................................... 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
and for the three months ended March 31, 1996 and 1997 (unaudited) ............... 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
and for the three months ended March 31, 1997 (unaudited) ........................ 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
and for the three months ended March 31, 1996 and 1997 (unaudited) ............... 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,
----------------------------- MARCH 31,
1995 1996 1997
------------ -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .................................... $ 483,084 $ 6,294,697 $ 4,869,565
Accounts receivable .......................................... - 340,000 236,927
Prepaid and other current assets .............................. 15,833 85,840 138,884
Deferred tax asset ............................................. - 182,000 183,190
--------- ----------- -----------
Total current assets ....................................... 498,917 6,902,537 5,428,566
Property and equipment, net .................................... 31,290 1,049,952 1,315,388
Deferred offering costs ....................................... - - 298,900
Other assets ................................................... 25,359 325,126 368,390
--------- ----------- -----------
$ 555,566 $ 8,277,615 $ 7,411,244
========= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable ............................................. $ 80,045 $ 92,192 $ 453,898
Accrued compensation .......................................... - 82,707 386,511
Accrued expenses ............................................. 28,004 181,802 280,491
Unearned revenue ............................................. - 2,242,011 1,596,376
--------- ----------- -----------
Total current liabilities ................................. 108,049 2,598,712 2,717,276
--------- ----------- -----------
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 shares issued and outstanding at
December 31, 1995; 7,698,532 shares issued and outstanding
at December 31, 1996 and March 31, 1997 ..................... 54,500 76,985 76,985
Additional paid-in capital .................................... 1,035,500 9,110,105 9,110,105
Accumulated deficit .......................................... (642,483) (3,508,187) (4,493,122)
--------- ----------- -----------
Total shareholders' equity ................................. 447,517 5,678,903 4,693,968
--------- ----------- -----------
$ 555,566 $ 8,277,615 $ 7,411,244
========= =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NETSPEAK CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------ --------------------------------------------------------------------
THREE MONTHS
MAY 15, 1995 DECEMBER 8, 1995 YEAR ENDED ENDED MARCH 31,
TO DECEMBER 18, TO DECEMBER 31, DECEMBER 31, -----------------------------
1995 1995 1996 1996 1997
------------------ ------------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues ..................... $ - $ - $ 867,117 $ 90,681 $ 903,766
Operating expenses:
Cost of revenues ............. - - 47,129 3,752 43,522
Research and development ....... 175,038 28,301 2,255,644 327,947 1,147,402
Sales and marketing .......... - - 722,353 91,604 399,185
General and administrative .... 5,644 57,200 836,791 85,168 312,099
Purchased research and
development ................... - 556,982 - - -
--------- --------- ----------- --------- ---------
Total operating expenses ..... 180,682 642,483 3,861,917 508,471 1,902,208
Loss from operations ............ (180,682) (642,483) (2,994,800) (417,790) (998,442)
Interest and other income ...... - - 172,096 17,423 57,317
--------- --------- ----------- --------- ---------
Loss before income taxes ......... (180,682) (642,483) (2,822,704) (400,367) (941,125)
Income taxes ..................... - - 43,000 - 43,810
--------- --------- ----------- --------- ---------
Net loss ........................ $(180,682) $(642,483) $(2,865,704) $(400,367) $(984,935)
========= ========= =========== ========= =========
Net loss per share ............... $ (0.35) $ (0.05) $ (0.12)
=========== ========= =========
Shares used in computing net
loss per share .................. 8,176,833 8,176,833 8,176,833
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NETSPEAK CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------------ PAID-IN ACCUMULATED
SHARES 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
Net loss (unaudited) ............... - - - (984,935) (984,935)
---------- ------- ---------- ----------- -----------
Balance at March 31, 1997
(unaudited) ..................... 7,698,532 $76,985 $9,110,105 $(4,493,122) $ 4,693,968
========== ======= ========== =========== ===========
</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
DECEMBER 18, TO DECEMBER 31,
1995 1995
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (180,682) $ (642,483)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ....................................... 1,500 -
Purchased research and development .................. - 556,982
Common stock issued for services ..................... - -
Deferred taxes ....................................... - -
Changes in assets and liabilities:
Accounts receivable .............................. - -
Prepaid and other current assets .................. - (15,833)
Other assets ....................................... - (25,359)
Accounts payable ................................. 43,927 36,118
Accrued compensation .............................. - -
Accrued expenses ................................. - 28,004
Unearned revenue ................................. - -
---------- ----------
Net cash used in operating activities ............... (135,255) (62,571)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (26,027) (6,763)
Acquisition costs paid and cash overdraft assumed ...... - (37,582)
---------- ----------
Net cash used in investing activities ............... (26,027) (44,345)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
and warrants .......................................... 129,200 590,000
Cash overdraft .......................................... 32,082 -
Deferred offering costs paid ........................... - -
---------- ----------
Net cash provided by (used in)
financing activities .............................. 161,282 590,000
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ....................................... - 483,084
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .................................... - -
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD .......................................... $ - $ 483,084
========== ==========
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes .............................. - -
---------- ----------
NONCASH INVESTING AND FINANCING
ACTIVITIES-SEE NOTES 2 AND 3
<CAPTION>
SUCCESSOR
---------------------------------------------
THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -----------------------------
1996 1996 1997
--------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (2,865,704) $ (400,367) $ (984,935)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation ....................................... 198,172 22,728 111,666
Purchased research and development .................. - - -
Common stock issued for services ..................... 35,000 - -
Deferred taxes ....................................... (182,000) - (1,190)
Changes in assets and liabilities:
Accounts receivable .............................. (340,000) - 103,073
Prepaid and other current assets .................. (70,007) (18,813) (53,044)
Other assets ....................................... (299,767) (121,527) (43,264)
Accounts payable ................................. 12,147 50,264 111,706
Accrued compensation .............................. 82,707 36,581 303,804
Accrued expenses ................................. 153,798 (3,518) 98,689
Unearned revenue ................................. 2,242,011 - (645,635)
------------ ---------- -----------
Net cash used in operating activities ............... (1,033,643) (434,652) (999,130)
------------ ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (1,216,834) (479,780) (377,102)
Acquisition costs paid and cash overdraft assumed ...... - - -
------------ ---------- -----------
Net cash used in investing activities ............... (1,216,834) (479,780) (377,102)
------------ ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock
and warrants .......................................... 8,062,090 3,134,528 -
Cash overdraft .......................................... - - -
Deferred offering costs paid ........................... - - (48,900)
------------ ---------- -----------
Net cash provided by (used in)
financing activities ............................... 8,062,090 3,134,528 (48,900)
------------ ---------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ....................................... 5,811,613 2,220,096 (1,425,132)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .................................... 483,084 483,084 6,294,697
------------ ---------- -----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD .......................................... $ 6,294,697 $2,703,180 $ 4,869,565
============ ========== ===========
SUPPLEMENTAL INFORMATION:
Cash paid for income taxes .............................. $ 225,000 - $ 30,000
------------ ---------- -----------
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 March 31, 1997 and for the
period from December 8, 1995 (inception) to December 31, 1995, for the year
ended December 31, 1996 and the three months ended March 31, 1996 and 1997. 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 $8.50 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," requires 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.
UNAUDITED INTERIM FINANCIAL STATEMENTS-The interim consolidated financial
statements and the related information in the notes as of March 31, 1997 and for
the three months ended March 31, 1996 and 1997 are unaudited. Such interim
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of management,
reflect all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the financial position, the results of operations
and cash flows for the interim periods presented. The results of operations for
the interim periods presented are not necessarily indicative of the results to
be expected for the full year.
RECLASSIFICATIONS-Certain reclassifications have been made to prior year
statements to conform to current year presentations.
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
========
F-9
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
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.
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 a 21 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.
During the three months ended March 31, 1997 the Company incurred $298,900
in deferred costs related to the Company's pending initial public offering of
which $250,000 was included in accounts payable at March 31, 1997.
The Company has authorized 1,000,000 shares of preferred stock, $.01 par
value. No shares of preferred stock have been issued.
F-10
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
3. SHAREHOLDERS' EQUITY-(CONTINUED)
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
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
--------------- --------------
<S> <C> <C>
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
======== ==========
</TABLE>
Depreciation expense during 1995 and 1996 was $0 and $198,172,
respectively.
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, 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>
F-11
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
5. STOCK BASED COMPENSATION-(CONTINUED)
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.
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.
F-12
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
6. COMMITMENTS AND CONTINGENCIES-(CONTINUED)
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.
In May 1997, the Company received a letter from e-Net, Inc. ("e-Net")
alleging that the Company's WebPhone product infringes U.S. Patent No. 5,526,353
owned by e-Net. Although, there can be no assurance of the outcome of this
uncertainty, following an analysis of the subject patent and the WebPhone
product, management believes the allegations are without merit and that any
potential liability related to e-Net's allegations will not have a material
effect on the Company's financial position and 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.
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.
F-13
<PAGE>
NETSPEAK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(CONTINUED)
7. INCOME TAXES-(CONTINUED)
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-14
<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 .................................... 21
Management ................................. 34
Certain Transactions ........................ 39
Principal Shareholders ..................... 40
Description of Capital Stock ............... 41
Shares Eligible for Future Sale ............ 43
Underwriters ................................. 44
Legal Matters .............................. 45
Experts .................................... 46
Additional Information ..................... 46
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.
2,000,000 Shares
[NetSpeak logo]
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
Nasdaq National Market ......................................................... 41,750
Printing and engraving expenses ................................................ 125,000
Legal fees and expenses ......................................................... 250,000
Accounting fees and expenses ................................................... 95,000
Blue Sky fees .................................................................. 15,000
Transfer Agent's fees and expenses ............................................. 5,000
Directors and Officer's Insurance Premiums, relating to Initial Public Offering 200,000
Miscellaneous .................................................................. 7,513
--------
Total: ..................................................................... $750,000
========
</TABLE>
All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market 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 commissions were paid in connection
with such private offering. In January 1996, the Company issued
II-1
<PAGE>
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.(1)
4.2 Form of Advisors' Warrant Agreement including Form of Advisors' Warrants.(1)
5.1 Opinion of Broad and Cassel.(1)
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.(1)
10.11 Right of First Negotiation Agreement between the Registrant and Motorola, Inc.(1)
10.12 Common Stock and Warrant Purchase Agreement between the Registrant and Creative
Technology, Ltd.(1)
10.13 Technology Development and Licensing Agreement between the Registrant and Creative
Technology, Ltd., as amended.(2)(3)
10.14 Distributor Agreement between Rockwell International Corporation, Switching Systems
Division, and NetSpeak dated January 30, 1997(1)(3)
10.15 Common Stock Purchase Agreement between the Registrant and ACT Networks, Inc.(2)
10.16 Technology Development and Licensing Agreement between the Registrant and ACT Networks, Inc.(2)
11.1 Net loss per share computation(1)
21.1 List of Subsidiaries of the Registrant.(1)
23.1 Consent of Broad and Cassel (filed as part of Exhibit 5.1)(1)
23.2 Consent of Deloitte & Touche LLP, independent auditors.(2)
23.3 Consent of Michael B. Goldberg(1)
23.4 Consent of Martin Shum(1)
24.1 Powers of Attorney(1)
<FN>
- ----------------
* 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.
</FN>
</TABLE>
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
II-3
<PAGE>
high end of the estimated maximum offering range may be reflected in the form
of prospectus filed 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 27th day of May, 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.
SIGNATURE TITLE DATE
- ------------------------------- ------------------------------- ------------
/s/ STEPHEN R. COHEN Chairman of the Board May 27, 1997
- ------------------------------- and Chief Executive Officer
Stephen R. Cohen (Principal Executive Officer)
/s/ JOHN W. STATEN Chief Financial Officer May 27, 1997
- ------------------------------- (Principal Financial and
John W. Staten Accounting Officer)
/s/ * President, Chief Operating May 27, 1997
- ------------------------------- Officer and Director
Robert Kennedy
/s/ * Executive Vice President, May 27, 1997
- ------------------------------- Chief Technical Officer
Shane D. Mattaway and Director
/s/ * Director May 27, 1997
- -------------------------------
Steven D. Leeke
/s/ * Director May 27, 1997
- --------------------------------
A. Jeffry Robinson
- ----------------
* By: /s/ Stephen R. Cohen
--------------------
Stephen R. Cohen
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
10.13 Technology Development and Licensing Agreement between the Registrant and Creative
Technology, Ltd., as amended.
10.15 Common Stock Purchase Agreement between the Registrant and ACT Networks, Inc.
10.16 Technology Development and Licensing Agreement between the Registrant and ACT Networks, Inc.
23.2 Consent of Deloitte & Touche LLP, independent auditors.
</TABLE>
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
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<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 license or sell
for retail sale, or otherwise distribute an Activated WebPhone, Activated
Product, or Restricted Product to any third party; PROVIDED, HOWEVER, that
Licensor may license, sell, or otherwise distribute an Activated WebPhone to:
(a) telephone companies; (b) Internet service providers; (c) customers via
Licensor's home page of its web site on the Internet; 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 sell or distribute its
Business WebPhone System (as defined in Exhibit B attached hereto): (x) through
any retail distribution channel, or (y) to any PC system OEM manufacturers.
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 Business WebPhone Systems to be used, sold, or distributed by any
third party 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 one (1) third party identified during the Term of this
Agreement to use, sell, or distribute the Business WebPhone System with a
graphical user interface that is customized for or modified by or otherwise
designed by or for such third party ("Customized Graphical User Interface"),
solely if such Customized Graphical User Interface: (i) does not include the
WebPhone trademark or any confusingly similar trademark; and (ii) is
substantially different from the Creative Graphical User Interface. 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.
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<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.
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<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
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<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.
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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,
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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
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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.
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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,
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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.
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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
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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]
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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
*
*Confidential portions omitted and filed separately with the Commission.
<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.
xiii 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
*
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT G
CRITICAL TERRITORIES
*Confidential portions omitted and filed separately with the Commission.
<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.
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"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.
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(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.
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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.
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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.
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<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.
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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.
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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.
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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
* years, beginning on * and ending on * . 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: (i)*
from the date that such Client/Server Derivative Work is tested and accepted as
version 1.0 final by both parties; or (ii) six (6) months from the date the
Creative Client/Server Derivative Work is first commercially available by
Creative; PROVIDED, HOWEVER, that Licensor may: (x) provide a limited number of
copies of the object code version of the Client/Server Derivative Works, solely
for evaluation purposes, to any third party no sooner than sixty (60) days after
such Client/Server Derivative Works is tested and accepted as final by both
parties; and (y) enter into any agreement with a third party for such
Client/Server Derivative Works no sooner than ninety (90) days after such
Client/Server Derivative Works is tested and accepted as final by both parties,
which acceptance shall not unreasonably be delayed.
*Confidential portions omitted and filed separately with the Commission.
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*
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 RESTRICTIVE COVENANTS.
(a) During the period of * years from the earlier of: (1) deployment
of the Creative *; or (ii) thirty (30) days from final acceptance of the
Client/Server Derivative Works by Creative, Creative shall not: operate, offer,
control, market, license, sell, or otherwise distribute an Internet Telephony
Service, unless otherwise agreed to by Licensor. In the event that Creative
desires to add rights to Internet telephony for Creative * customers, Licensor
agrees to enter into good faith negotiations with Creative for such rights;
provided, however, that nothing herein shall prohibit or limit in any manner
Creative's right and ability to distribute NetMeeting and/or OnLive to and use
the NetMeeting and/or OnLive service or to distribute another telephony client.
During the First Amendment Term, Creative agrees not to use Client/Server
Derivative Works or Licensor Technology to establish or operate an Internet
Telephony Service, unless otherwise permitted herein or anticipated in Exhibit
G.
*Confidential portions omitted and filed separately with the Commission.
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<PAGE>
(b) During the period of * years from the earlier of: (i) deployment
of the Creative * or (ii) thirty (30) days from final acceptance of the
Client/Server Derivative Works by Creative, Licensor shall not: (x) own any
interest in, operate, control, offer, market, license, sell, or otherwise
distribute or maintain (other than for a third party) any content
aggregation or content delivery or distribution service utilizing the Client/
Server Derivative Works, EXCEPT for educational and corporate services; (y)
provide any daily, weekly, monthly, or other periodic programming to third
party networks utilizing the Client/Server Derivative Works; or (z) produce
or co-produce any third party content utilizing the Client/Server Derivative
Works for or to any Internet-based broadcast to any third party receiver
device or system.
5.6 COMPATIBILITY. The parties hereto agree that, during the First
Amendment Term: (i) Licensor Transceivers, Licensor Transmitters Client/Server
Derivative Works developed by Licensor and Creative pursuant to this Agreement;
and (ii) Creative Broadcast Network 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
license 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 Registered 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 ten
(10) years 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 two (2) years 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 four (4) years from August 31, 1996.
6.3 TERMINATION. The provisions of Sections 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
*
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT B
Features and Specifications (WebPhone/Video WebPhone)
<TABLE>
<CAPTION>
[ILLEGIBLE]
<S> <C> <C> <C>
WEBPHONE BAUD AND AUDIO
Talk time Restricted unlimited unlimited
- - restrictions 3 minutes n/a n/a
Lines 1 1 4 or more
OGM 1 3 unlimited
Voicemail 2 10 unlimited
Offline voicemail Receive Send/Rec Send/Rec
Personal Dir Entree 3 unlimited unlimited
Directory Assistance yes yes yes
Direct calling yes yes yes
File transfer?
Conferencing Participant Participant Full 4 line Conf
Pary Specific Boardrs no yes yes
Auto answer yes yes yes
Multimedia help system yes yes yes
Call transfer no no yes
Call hold yes yes yes
OND yes yes yes
Recall Restricted yes yes
Mute yes yes yes
Webboard yes yes yes
User config. sound effects no yes yes
Caller ID yes yes yes
Text chat Noteboard Noteboard Noteboard
On-hold MIDI music yes yes yes
Speed dialing yes yes yes
Conversation exception yes yes yes
Codecs: GSM, Truspeech, SVP yes yes yes
WebPhone 2.02 CS Support Win95,3.1,NT Win95,3.1 Win95,3.1
WebPhone 3.0 CS Support Win95 Win95 Win95
Modem support 28.8,ISDN,LAN 28.8,ISDN,LAN 28.8,ISDN,LAN
APIs WAPI WAPI WAPI
VIDEO SPECIFICATIONS FOR 3.0 (SEE EXH A)
2-way video (32b831) Send/Rec Rec Send/Rec
- - restrictions 3 minutes 30 day promotion unlimited
148 by 178 yes yes yes
Direct x support?
Snapshot capabilities yes yes yes
- - save formats: bmp, jpeg, ? yes yes yes
SYSTEM REQUIREMENTS
80488DX-33 Mhz PC or faster
Pentium 75 for Tru speech
4 MB RAM
Sound card with MIC and Speaker
Winsock 1.1 compliant stack
VGA card capable of displaying 256 colors
Full duplex audio card for full duplex mode
5 MB of free disk space
</TABLE>
-i- CONFIDENTIAL
<PAGE>
EXHIBIT C
LICENSOR CLIENT MODULES/LICENSOR SERVER MODULES
I. LICENSOR CLIENT MODULES
*
II. LICENSOR SERVER MODULES
*
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT D
CREATIVE APPLICATIONS/LICENSOR APPLICATIONS
I. CREATIVE APPLICATIONS
*
II. LICENSOR APPLICATIONS
1. WebPhone
*
6. Video WebPhone
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT E
SERVER PRODUCTS; NOTEBOOK
I. SERVER PRODUCTS
*
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT F
CREATIVE TECHNOLOGY; CREATIVE *
I. CREATIVE TECHNOLOGY
1. Sound Blaster/Registered TradeMark/
2. Soundfront/TradeMark/
3. 3-D positional audio
4. algorithmic composer
5. Wave table
6. stereo enhancement
7. Creative software and utilities
8. video conference (VATP)
9. video compression (H.263)
10. audio codec (Share Vision)
11. White Board (Share Vision)
II. CREATIVE *
[TO BE PROVIDED WITHIN SIXTY (60) DAYS OF THE AMENDMENT EFFECTIVE DATE.]
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT G
BASIC COMPATIBILITY PRODUCTS AND SPECIFICATION
*
*Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT H
EXCEPTED COMPANIES
*
*Confidential portions omitted and filed separately with the Commission.
<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.
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT is made as of the 5th day of May,
1997, by and between Netspeak Corporation, a Florida corporation (the
"Company"), and ACT Networks, Inc., a Delaware corporation (the "Investor").
RECITALS
WHEREAS, the Company has filed with the Securities Exchange Commission
(the "SEC"), a Registration Statement on Form S-1 (the "Registration Statement")
to issue up to 2,300,000 shares of its common stock (the "Registered Stock") in
an initial public offering (the "IPO");
WHEREAS, the Investor wishes to give the Company an indication of
interest to purchase $2,000,000 of Registered Stock;
NOW, THEREFORE, in consideration of the foregoing and other valuable
consideration, the parties hereto agree as follows:
1. THE SECURITIES.
1.1 INDICATION OF INTEREST.
The Investor has received and reviewed a copy of the
Registration Statement and hereby indicates to the Company that it has an
interest in purchasing that number of shares of the Company's Registered Stock
(such shares, the "Securities") in the IPO which equals $2,000,000 divided by
the actual price per share of the Registered Stock as sold to the public in the
IPO. Upon the Registration Statement being declared effective by the SEC, the
Company will furnish the Investor with a definitive prospectus. The Investor
shall promptly notify the Company of its election to proceed with the purchase
of the Securities, subject to the other temrs and conditions set forth herein.
1.2 CLOSING. The purchase and sale of the Securities shall
take place at the same time and place as the closing of the IPO, subject to the
prior or concurrent fulfillment of all of the closing conditions set forth
herein (which time and place are designated as the "Closing"). The Company shall
provide the Investor with at least three (3) days written notice prior to the
Closing. At the Closing, the Company shall deliver to the Investor a certificate
representing the Common Stock that the Investor is purchasing against payment of
the purchase price therefor. The purchase price shall be paid by the Investor in
accordance with instructions furnished by Josephthal, Lyon & Ross Incorporated
and Cruttenden Roth Incorporated, the representatives (the "Representatives") of
the several underwriters of the IPO.
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to the Investor that:
2.1 UNDERWRITING AGREEMENT REPRESENTATIONS. Each of the
representations and warranties to be made by the Company to the Underwriters in
Section I of the Underwriting Agreement to be entered into between the Company
and the Representatives relating to the IPO (the "Underwriting Agreement") will
be true and accurate as of the date thereof and at the Closing. Such
representations and warranties shall be deemed to be incorporated herein as if
set forth herein, and the Investor shall be entitled to rely on the same as if
such representations and warranties were made directly to the Investor as of the
date of the Underwriting Agreement and at the Closing.
2.2 AUTHORIZATION. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement the performance of all
obligations of the Company hereunder has been taken or will be taken prior to
the Closing, and this Agreement constitutes the valid and legally binding
obligation of the Company, enforceable in accordance with its terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and
other laws of general application affecting enforcement of creditors' rights
generally, and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief, or other equitable remedies.
2.3 LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that questions
the validity of this Agreement or the right of the Company to enter into this
Agreement, or to consummate the transactions contemplated hereby. The Company is
not a party or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality which
would have a material adverse effect on the Company's ability to enter into this
Agreement, or to consummate the transactions contemplated hereby.
2.4 COMPLIANCE WITH OTHER INSTRUMENTS.
(a) The Company is not in violation or default in any
material respect of any provision of its Articles or Bylaws, or any instrument,
judgment, order, writ, decree or contract to which it is a party or by which it
is bound, or, to the best of its knowledge, of any provision of any federal or
state statute, rule or regulation applicable to the Company, in each case, which
violation or default would have a material adverse effect on the Company's
ability to enter into this Agreement or to consummate the transactions
contemplated hereby, or which would have a material adverse effect on the
Company, its properties, business or financial condition. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not (a) result in any such violation or
default or (b) 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 to which the Company is a
party or to which its assets are bound, or an event that results in the
- 2 -
<PAGE>
creation of any material lien, charge or encumbrance upon any assets of the
Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of
any material permit, license, authorization, or approval applicable to the
Company, its business or operations or any of its assets or properties.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor hereby
represents and warrants that it has full power and authority to enter into this
Agreement and this Agreement constitutes its valid and legally binding
obligation, enforceable in accordance with its terms.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
the Investor under Section I of this Agreement are subject to the turbulent on
or before the Closing of each of the following conditions, the waiver of which
shall not be effective unless the Investor consents in writing thereto:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing.
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.
The Company shall have, concurrently with the Closing, consummated the IPO of at
least 1,500,000 shares of Registered Stock pursuant to the Registration
Statement (including the Securities) with gross proceeds of at least
$10,000,000. If the IPO has not been consummated prior to August 1, 1997, this
Agreement shall terminate and neither the Company nor the Investor shall have
any obligation hereunder.
4.3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement and the Registration Statement, as
the case may be, shall be duly obtained and effective as of the Closing.
4.4 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonable satisfactory in form and
substance to Investor's counsel, and they shall have received all such
counterpart original and certified or other copies of such documents as they may
reasonably request.
4.5 OFFICER'S CERTIFICATE. The Company shall have delivered a
certificate executed by the Chief Executive Officer of the Company certifying as
to the matters set forth in Sections 4.1 and 4.2 hereof.
- 3 -
<PAGE>
4.6 DELIVERY OF STOCK CERTIFICATE. The Company shall have
delivered a Common Stock certificate representing the Securities acquired
hereunder.
4.7 CONSUMMATION OF TECHNOLOGY DEVELOPMENT AND LICENSE
AGREEMENT. The Company and the Investor shall have executed and delivered that
certain Technology Development and License Agreement to be dated the date
hereof, and the Company shall not be in breach or default under such agreement
in any material respect.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations
of the Company to the Investor under this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions by the
Investor.
5.1 Representations and Warranties. The representation and
warranty of the Investor contained in Section 3 shall be true on and as of the
Closing with the same effect as though such representation and warranty had been
made on and as of the Closing.
5.2 PAYMENT OF PURCHASE PRICE. The Investor shall have
delivered the purchase price in accordance with the provisions of Section 1.2.
5.3 QUALIFICATIONS. All authorizations, approvals, or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Securities pursuant to this Agreement and the Registration Statement, as
the case may be, shall be duly obtained and effective as of the Closing.
5.4 DIRECTOR'S AND OFFICER'S INSURANCE. The Company shall have
in place and in full force and effect, a director's and officer's insurance
policy in the minimum amount of $5,000,000.00.
6. COVENANTS OF THE COMPANY.
6.1 APPOINTMENT OF MARTIN SHUM. Immediately following the
Closing, the Company shall appoint Martin Shum to its Board of Directors.
Furthermore, for a period of two (2) years after the Closing, at each
shareholders' meeting at which directors are to be elected, the Company agrees
to nominate Martin Shum as part of its management's slate of nominees to its
Board of Directors.
6.2 MAINTENANCE OF DIRECTOR'S AND OFFICER'S INSURANCE POLICY.
The Company agrees to maintain and keep in full force and effect, for a period
of at least 2 years after the Closing, a director's and officer's insurance
policy in a minimum amount of $5,000,000.00.
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7. MISCELLANEOUS.
7.1 SURVIVAL OF WARRANTIES. The warranties, representations
and covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of the Investor or the Company.
7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
7.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
7.4 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.
7.5 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.
7.6 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or three
(3) days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties.
7.7 EXPENSES. Irrespective of whether the Closing is effected,
the Company shall pay all costs and expenses that it incurs with respect to the
negotiation, execution, delivery and performance of this Agreement. If 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.
7.8 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
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or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investor.
7.9 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
7.10 ENTIRE AGREEMENT. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations, or covenants except as specifically set forth
herein or therein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NETSPEAK CORPORATION
By:/s/ ROBERT KENNEDY
---------------------------------
Name: Robert Kennedy
Title: President
Address: 902 Clint Moore Road, Suite 104
Boca Raton, Florida 33487
INVESTOR:
ACT NETWORKS, INC.
By:/s/ MELVIN L. FLOWERS
---------------------------------
Name: Melvin L. Flowers
Title: CFO and Vice President
Finance and Administration
Address: 188 Camino Ruiz
Camarillo, California 93012
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TECHNOLOGY DEVELOPMENT AND LICENSE AGREEMENT
This Technology Development and License Agreement (the "Agreement")
entered into as of the 5th day of May, 1997 (the "Effective Date"), by and
between NETSPEAK CORPORATION, a Florida corporation ("NetSpeak") with its
principal place of business at 902 Clint Moore Road, Suite 104, Boca Raton,
Florida 33487 and ACT NETWORKS, INC., a Delaware corporation ("ACT"), with its
principal place of business at 188 Camino Ruiz, Camarillo, California 93012.
RECITALS:
A. NetSpeak has designed and is the owner of certain software modules
for use in sophisticated communications solutions relating to the integration of
Internet protocol based communications systems and public switched telephone
networks.
B. ACT is developing a hardware and software platform for frame relay
systems for wide area networks integrating voice, data and facsimile
communications utilizing telecommunications systems.
C. The parties desire to work in cooperation to adapt the NetSpeak
software to be compatible with the ACT hardware and software platform for the
purpose of marketing customer solutions.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms contained within this agreement
shall have the meaning set forth in this Section 1 unless otherwise defined in
the text of this agreement.
1.1 "ACT" shall mean ACT Networks, Inc. and any
Affiliates thereof.
1.2 "ACT Documentation" shall mean the ACT user manuals,
programmers' guides, system guides and/or related
publications which are supplied to NetSpeak by ACT in
accordance with the sale of the ACT Product
hereunder.
1.3 "ACT Marks" shall mean the trademarks, logos and
trade names associated with the ACT Product whether
or not registered.
1.4 "ACT Product" shall mean the SDM-Rx as further
described in Schedule B.
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1.5 "ACT Software" shall mean the computer software
programs included in the ACT Product, in Object Code
form, as well as any enhancements, new releases,
updates or modifications thereto, in Object Code
form, which ACT provides to NetSpeak under this
Agreement.
1.6 "Affiliates" shall mean any entity that controls, is
controlled by or is under common control with a
relevant party hereto, with "control" meaning
ownership of more than fifty percent (50%) of the
voting stock of the entity, or, in the case of a
non-corporate entity, an equivalent interest.
1.7 "Agreement Term" shall mean five (5) years from the
Effective Date of the Agreement.
1.8 "Effective Date" shall mean the date upon which both
parties have entered this Agreement as set forth
above.
1.9 "Integrated Product" shall mean the product
integrating the ACT Product and a NetSpeak Product,
as described in Section 4.
1.10 "Intellectual Property" shall mean any trade secrets,
patents, copyrights, trademarks, know-how, moral
rights, and/or other intellectual property and
proprietary rights of any type under the laws of any
governmental authority in the world, domestic or
foreign, including, without limitation, all
applications and registrations relating to any of the
foregoing.
1.11 "NetSpeak" shall mean NetSpeak Corporation and any
Affiliates thereof.
1.12 "NetSpeak Documentation" shall mean the NetSpeak user
manuals, programmers' guides, system guides and/or
related publications which are supplied to ACT by
NetSpeak in accordance with the licenses granted
hereunder.
1.13 "NetSpeak Marks" shall mean the trademark
WebPhone/Trademark/ and other NetSpeak marks to be
agreed to by the Parties.
1.14 "NetSpeak Product(s)" shall mean NetSpeak Software.
1.15 "NetSpeak Software" shall mean the computer software
programs listed on Schedule A of this Agreement, in
Object Code form, any enhancement, new releases,
updates or modifications thereto, in Object Code
form, provided by NetSpeak to ACT, as well as new
software programs developed by NetSpeak for use in
conjunction with the ACT Platform.
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1.16 "Object Code" shall mean a rendition or compilation
of a software program primarily readable in binary or
machine language translated from Source Code by means
of a complier, assembler and/or interpreter.
1.17 "Proprietary Information" shall mean information as
defined in Section 13.
1.18 "Source Code" shall mean a written rendition of a
software program readable and comprehensible by a
skilled computer programmer.
2. LICENSING AND DISTRIBUTION RIGHTS GRANTED BY NETSPEAK.
For the duration of the term of this Agreement, and subject to
all the terms and conditions herein, including payment of the applicable
royalties:
2.1 NetSpeak hereby grants to ACT a worldwide,
non-transferable (except as provided in Section 27), and non-exclusive license
to reproduce, bundle and distribute the NetSpeak Software and NetSpeak
Documentation with the ACT Platform for distribution and licensing by ACT,
through ACT's distribution channels.
2.2 NetSpeak hereby grants to ACT a worldwide,
non-transferable, and non-exclusive license to use the NetSpeak Software and
NetSpeak Documentation for internet enablement of ACT customer web sites.
2.3 NetSpeak hereby grants to ACT a worldwide, non-exclusive
license to reproduce, distribute and sublicense through multiple tiers of
distribution to end-users, the NetSpeak Software and NetSpeak Documentation,
through ACT's distribution channels.
2.4 Any use, distribution or sublicensing of NetSpeak Products
by ACT as allowable under Sections 2.1-2.3 of this Agreement shall be under
terms similar to the then current terms and conditions of a NetSpeak Program
License Agreement, a sample of which is described in Schedule D hereto.
3. LICENSING AND DISTRIBUTION RIGHTS GRANTED BY ACT.
For the duration of the term of this Agreement, and subject to
the terms and conditions herein:
3.1 Subject to all of the terms and conditions of this
Agreement, ACT grants to NetSpeak, and NetSpeak accepts, a worldwide,
non-exclusive, non-transferable, non-sublicensable right and license to
distribute and sublicense through multiple tiers of distribution to end-users
the ACT Product. The parties will agree in the future whether the Integrated
Product will be distributed under ACT's label or under NetSpeak's label. If
sales are to occur under NetSpeak's label, NetSpeak shall supply, at its expense
and reasonably in advance of orders, the necessary artwork, labels and color
information for the Integrated Product. Any software and/or firmware contained
in the ACT Product is licensed for distribution only and is
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not to be sold. Any distribution or sublicensing of the ACT Product by NetSpeak
as allowable under this Section 3.1 shall be under terms similar to the then
current terms and conditions of an ACT Networks End-User License Agreement, a
sample of which is described in Schedule E hereto. NetSpeak is not entitled to
receive any source code or source documentation with respect to any such
software or firmware.
4. PRODUCT DEVELOPMENT & INTEGRATION. The parties further have agreed
to assist each other in the integration of their respective products. To
accomplish these broad goals, the parties have agreed to the following
development and integration objectives.
4.1 The parties, utilizing the Co-Development Committee will
jointly define a design specification to ensure compatibility between the
NetSpeak Products and the ACT Product. Following review and approval by each
party of the design specification, each party will use commercially reasonable
efforts to modify its respective product(s) in order to conform with the design
specification. Any and all modifications made to the NetSpeak Products in order
to conform with the design specification will be owned by NetSpeak and will be
considered NetSpeak's Intellectual Property. Similarly, any and all
modifications to the ACT Product so that the ACT Product conforms with the
design specification will be owned by ACT and will be considered ACT
Intellectual Property. NetSpeak hereby covenants to incur a minimum of Eighty
Thousand Dollars ($80,000) in expenses in pursuing the development and
integration of the NetSpeak Products hereunder.
4.2 CALL CONTROL. ACT shall be responsible for adding the
WebPhone Application Programming Interface (WAPI) compatible call control to the
ACT Platform. ACT shall also be responsible for adding the agreed upon
compression/decompression code (codecs) into the ACT Product and implementing
codec negotiation capability into the ACT Product. Both parties shall use
commercially reasonable efforts to integrate the WAPI into the ACT Product, and
utilizing the Co-Development Committee described herein for guidance, to devote
such resources as the parties shall determine jointly are necessary to
accomplish this integration.
4.3 SESSION MANAGEMENT. The parties, utilizing the
Co-Development Committee for such guidance as is required shall jointly define
the implementation strategy for session management negotiation, including,
without limitation, determination of the amount of resources that each party
shall devote to such implementation.
4.4 SNMP MIB EXTENSIONS. The parties shall jointly identify
and use commercially reasonable efforts to implement the SNMP MIB extensions,
utilizing the Co-Development Committee assistance for such tasks.
4.5 DELIVERY OF MASTER COPIES OF NETSPEAK PRODUCTS. NetSpeak
shall deliver to ACT, at NetSpeak's cost and expense, a "gold master" copy of
each NetSpeak Product to be used, sold and/or distributed by ACT, stored upon
such machine-readable storage media as the parties may hereafter agree in
writing from which duplicates of such NetSpeak Product and the NetSpeak
Documentation may be produced once testing is complete and the Integrated
Product is ready for market release.
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4.6 NO RIGHT TO REPRODUCE, MODIFY OR REVERSE ENGINEER. Nothing
in this Agreement shall be construed as giving either party any right to, and
each party agrees that it shall not, and shall not permit or assist any other
person or entity to alter, modify, adapt, port or create a derivative works, as
that term is defined in the U.S. copyright laws, of any product of either other
party except as may be expressly and clearly permitted in this Agreement. Each
party further agrees that it shall not, and shall not permit or assist any other
party to, disassemble, decompile or reverse engineer all or any part of any
product of the other party. Without limiting the materiality of any other term
of this Agreement, the failure of either party to comply with the provisions of
this Section 4.6 shall be considered a material breach of this Agreement.
5. CUSTOM ENGINEERING, ENHANCEMENTS, UPGRADES, AND MODIFICATIONS.
5.1 Enhanced feature functionality and upgrades which may be
developed by NetSpeak in the future for any NetSpeak Product shall be offered to
ACT for such additional royalties and payments, and may be accepted or rejected
by ACT in its sole discretion.
5.2 Enhanced feature functionality and upgrades which may be
developed by ACT in the future for the ACT Product shall be offered to NetSpeak
for such additional royalties and payments, and may be accepted or rejected by
NetSpeak in its sole discretion.
5.3 Either party may, from time to time, request the other to
provide non-recurring engineering ("NRE") services to custom engineer, modify,
and create enhancements to the products subject to this Agreement. Each party
agrees to undertake such work provided it has available resources to be devoted
to the work requested and after conducting its own review. A party shall
complete its review of the work requested within ten (10) business days of its
receipt of a written request from the other for such services, and shall deliver
a written response indicating that it 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 of any work product resulting from such
NRE services shall belong to the party paying for such work, subject to any
prior Intellectual Property rights of the other party in the underlying product.
The party owning such rights shall provide the developing party with a license
to such rights, subject to royalties and terms to be agreed to by the parties.
6. PRODUCT MANAGERS. At all times during the Agreement Term, each party
shall identify to the other party a "Product Manager" who shall be primarily
dedicated to that party's product and who shall be reasonably satisfactory to
the other party. The Product Manager shall be a designated individual employee
of each party who shall be available to either NetSpeak or ACT (as applicable)
on a reasonable basis during such party's regular business hours. Each Product
Manager shall maintain continuous, but not necessarily daily, contact with such
personnel of either ACT or NetSpeak (as applicable) may from time to time
designate, shall be fully familiar with such party's methods of operation in
general and the product in particular, shall coordinate the performance by its
company of such company's obligations under this Agreement, and shall promptly
respond to all inquiries from the other party, both oral and written. Fima
Vaisman is hereby initially appointed by ACT and is deemed reasonably
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satisfactory by NetSpeak, as the ACT Product Manager. Keith Kelly is hereby
initially appointed by NetSpeak and is deemed reasonably satisfactory by ACT, as
the NetSpeak Product Manager. Each party shall be entitled to change its
designated product manager upon provision of written notice of such change to
the other party. Neither party's Product Manager is authorized to amend, alter
or extend this Agreement in any manner.
7. CO-DEVELOPMENT COMMITTEE. A Co-Development Committee shall be
established, comprised of each party's Product Manager described above and a
Development Manager to be appointed by each party. Rudy DeBruin is hereby
appointed by ACT, and is deemed reasonably satisfactory by NetSpeak, as the ACT
Development Manager. Steve Mills is hereby appointed by NetSpeak, and is deemed
reasonably satisfactory by ACT, as the NetSpeak Development Manager. The
Co-Development Committee shall be responsible for the resolution of all
technical problems arising during (i) the modification and interpretation by
either party of any product enhancement, modification, upgrade or bug fix to any
existing product of the other party and (ii) customer support and shall be
responsible for identifying the countries in which homologation is to be
obtained and for determining the timing for seeking homologation in each
country. If the Co-Development Committee is unable to reach a decision with
respect to any issue within ten (10) days, the Product Managers shall resolve
the issue. In the event the Product Managers cannot resolve any issue within
five (5) days, the Product Managers shall submit the problem to the chief
executive officers of the parties for resolution. If the parties are unable to
resolve the dispute within five (5) days thereafter, the dispute shall be
resolved by binding arbitration. Arbitration shall be conducted under the
then-current Commercial Arbitration Rules of the American Arbitration
Association ("AAA") in Denver, Colorado. One arbitrator shall be chosen within
thirty (30) days by the AAA from a panel of arbitrators knowledgeable and
experienced in network computing, development of computer software and/or
hardware and commercial transactions. No discovery by the parties will be
conducted. Each party shall have no more than four (4) hours to present its
case. The arbitrator shall decide this dispute within five (5) days of the
conclusion of the parties' presentation. The written determination of the
arbitrator shall be final and shall not be subject to judicial review; provided,
however, that any award or determination rendered by the arbitrator(s) may be
entered in a court of competent jurisdiction. The prevailing party shall be
entitled to recover the costs of arbitration and attorneys' fees, which shall be
made part of the arbitrator's award. The arbitrator shall determine the
"prevailing party" for this purpose.
8. CONFERENCES. The parties agree to hold regularly scheduled meetings
on, at a minimum, a monthly basis. Each party will bear its own costs associated
with such meetings. Interim meetings will be coordinated on a AD HOC basis as
needed by telephone conferencing and based on need.
9. JOINT TRAINING PROGRAMS. NetSpeak and ACT agree to participate in
joint sales training and technical support training programs to be jointly
developed by the parties. Each party shall bear its own costs and expenses in
connection with such training programs. ACT and NetSpeak recognize that training
and installation must of necessity be a mutual and joint effort, and that such
installation and training will require the support and cooperation of both
parties. ACT may request additional training or general consulting services from
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NetSpeak, which training and services shall be provided in accordance with
NetSpeak's normal and customary rates.
10. COOPERATION. Both NetSpeak and ACT acknowledge and agree that
successful porting and integration of the ACT Product with the NetSpeak Software
shall require their full and mutual good faith cooperation. As such, the parties
agree to use commercially reasonable efforts to provide information and access
to personnel to achieve such porting and integration.
11. TECHNICAL SUPPORT. The parties agree to provide technical support
to one another in meeting the objectives of this Agreement. The parties further
agree to provide first and second level support to each other and their
respective customers, during the relevant warranty periods. The parties
acknowledge that the typical customer of the Integrated Product will want to
deal with only one vendor. As such, it will be the obligation of the party
selling the ACT Product to the customer to provide front line support. However,
it will be essential for the other party to provide effective, prompt back up
support.
12. ROYALTIES, ORDERS AND PAYMENT.
12.1 The royalties ("Royalties") and prices hereunder shall be
as set forth in Section 12.9 and Schedule C. Each party shall, from time to
time, provide the other with price lists for such party's products. ACT is
hereby granted a credit in the amount of Eighty Thousand Dollars ($80,000) to be
applied to Royalties accruing hereunder and with respect to any royalties or
other amounts payable by ACT to NetSpeak in connection with the purchase or
license of products under any other agreement between the parties.
12.2 Each party shall pay to the other a fixed rate of $120.00
per hour for custom engineering and enhancements as provided in Section 5.3
herein. Each party shall pay to the other such other party's then current
standard charges or customer service fees, as applicable, for any requested
customer support or out-of-warranty repair services.
12.3 ACCRUAL. Royalties payable under this Agreement shall be
deemed to accrue upon the shipment of such product in response to customer
orders, provided, however, that ACT shall have no obligation to pay Royalties to
NetSpeak for any sale or shipment of NetSpeak Products to NetSpeak. Royalty
payments are due and payable within thirty (30) days after the end of each
calendar quarter of the Agreement Term. Royalties received later than the due
date may, at NetSpeak's option, bear interest at a rate of eighteen percent
(18.00%) per annum.
12.4 ADJUSTMENTS. Without limiting any other term of this
Agreement, neither party will be obligated to pay Royalties on (a) units shipped
to end users, re-sellers, value-added re-sellers or dealers in replacement of
defective units in compliance with unit warranties; (b) units used for
demonstration or marketing purposes; (c) units shipped for service and support
purposes; or (d) units actually returned by customers.
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12.5 QUARTERLY STATEMENTS. In order to substantiate any
Royalty payment due under this Agreement, each party shall deliver to the other,
within thirty (30) days after the end of each calendar quarter of the Agreement
Term, a statement detailing the sales (including returns) and shipments of units
during the immediately preceding calendar quarter and cumulative for the term to
date. Such statement shall set out all figures by product and by state and
country. Any such Royalties that are due shall accompany the statement (if paid
by cashier's check) or shall have been previously wired to the recipient's
account.
12.6 AUDITS. Each party agrees to keep and preserve, during
the term of this Agreement, and for at least two (2) years after the expiration
of its term or any extension thereof, accurate records of all transactions
relating to this Agreement. In particular, each party shall ensure that its
records adequately identify the product so that they can be distinguished from
other goods not licensed hereunder. Each party or its designated representative
shall have the right, at its expense, at any time during the other party's
normal business hours and upon fifteen (15) business days prior written notice
to that party, to examine and make extracts of all such records, including all
build and ship records, invoices and other records that relate to the
manufacture, shipment and sale of product. If such an audit detects a shortfall
in Royalties paid, the audited party shall pay the unpaid Royalties together
with interest at a rate of eighteen percent (18.00%) per annum from the date due
on any unpaid amount. In addition, if in an audit of records it is determined
that there is a shortfall of ten percent (10.00%) or more in the amount of
Royalties due (exclusive of interest) as reported for the period which is the
subject of such audit, the audited party shall, upon request of the auditing
party, reimburse the auditing party for full out-of-pocket costs of the audit,
including without limitation, the costs of the auditing party's own employee
auditors, for actual working time and for travel time during normal working
hours.
12.7 PAYMENT FORMS. All payments due hereunder shall be made
by check or wire transfer. All payments shall be made in United States Dollars,
free of any withholding tax and of any currency control or other restriction.
12.8 TAXES. Each party shall be solely responsible for any
applicable sales, use, value added or other tax, tariff, duty or assessment
levied or imposed arising out of or related to any of the transactions
contemplated under this Agreement, other than any tax based on the parties'
income.
12.9 MOST FAVORED CUSTOMER RATES. NetSpeak agrees that the
royalty rates charged for any of its products under this Agreement shall be no
greater than that charged for the same product from its most favored customers.
12.10 FUTURE PRODUCTS. The parties intend to develop and
commercialize a new gateway server that will replace the Integrated Product. The
parties are currently working together to identify and develop the optimal
platform for this gateway server. While the parties desire to enter into a
binding contract for the development of a new platform, the source of the
technology, the specifications and the costs associated with the development of
this gateway server are so uncertain as to make a development contract
impracticable at this time. However, the parties agree that (i) in the event
that NetSpeak desires to develop or have developed a
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gateway server, it will first negotiate in good faith with ACT and, before
entering into an agreement with any third party for the same, provide ACT with
the right (exercisable upon thirty (30) days written notice) to match the terms
of a development/purchase agreement with such third party and (ii) in the event
ACT intends to develop or acquire a product which would function as the next
generation (after the Rx) gateway server, ACT agrees to negotiate in good faith
with NetSpeak and, before entering into an agreement with any third party for
the same, provide NetSpeak with the right (exercisable upon thirty (30) days
written notice), to match the terms of a development/purchase agreement with
such third party. The obligations under this paragraph 12.10 shall be in effect
for one (1) year from the date of this Agreement. In the event that the parties
hereto do reach an agreement based on their good faith negotiations, it is
intended that the terms of such agreement will be substantially similar to the
terms of this Agreement.
13. PROPRIETARY RIGHTS AND INTELLECTUAL PROPERTY.
13.1 NETSPEAK PROPERTY RIGHTS. ACT acknowledges and agrees
that the NetSpeak Products listed in Schedule A and all other items licensed
hereunder, and all copies thereof, constitute valuable trade secrets of NetSpeak
or proprietary and confidential information of NetSpeak and title thereto
remains in NetSpeak. All applicable copyrights, trade secrets, patents,
trademarks, and other Intellectual Property rights in the NetSpeak Products
listed in Schedule A and all other items licensed hereunder are and remain in
NetSpeak. All other aspects of the NetSpeak Products and all other items
licensed hereunder, including without limitation, programs, methods of
processing, specific design and structure of individual programs and their
interaction and unique programming techniques employed therein as well as screen
formats shall remain the sole and exclusive property of NetSpeak and shall not
be sold, revealed, disclosed or otherwise communicated, directly or indirectly,
by ACT to any person, company or entity whatsoever other than for the purposes
set forth herein. It is expressly understood that no title to or ownership of
the NetSpeak Products, or any part thereof is hereby transferred to ACT. The
parties hereto agree that the rights granted to each other hereunder, are rights
in "intellectual property" within the scope of Section 101 of the United States
Bankruptcy Code.
13.2 ACT PROPERTY RIGHTS. NetSpeak acknowledges and agrees
that the ACT Product listed in Schedule B and all other items licensed
hereunder, and all copies thereof, constitute valuable trade secrets of ACT or
proprietary and confidential information of ACT and title thereto remains in
ACT. All applicable copyrights, trade secrets, patents, trademarks and other
Intellectual Property rights in the ACT Product and all other items licensed
hereunder are and remain in ACT. All other aspects of the ACT Product and all
other items licensed hereunder, including without limitation, programs, methods
of processing, specific design and structure of individual programs and their
interaction and unique programming techniques employed therein as well as screen
formats shall remain the sole and exclusive property of ACT and shall not be
sold, revealed, disclosed or otherwise communicated, directly or indirectly, by
NetSpeak to any person, company or entity whatsoever other than for the purposes
set forth herein. It is expressly understood that no title to or ownership of
the ACT Product, or any part thereof is hereby transferred to NetSpeak. The
parties hereto agree that the rights granted to each other hereunder, are rights
in "intellectual property" within the scope of Section 101 of the United States
Bankruptcy Code.
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13.3 TRADEMARK LICENSES. During the term of this Agreement,
and subject to the terms and conditions of this Agreement, NetSpeak hereby
grants to ACT a personal, non-transferable, non-exclusive, worldwide right and
license to: (a) use and reproduce the NetSpeak Marks, either alone or co-branded
with any ACT Marks, solely in connection with the sale and distribution of the
Integrated Product; and (b) use, reproduce, display the NetSpeak Marks publicly
in connection with demonstration, promotion and advertisement of the Integrated
Product. Similarly, during the Term of this Agreement, and subject to the terms
and conditions of this Agreement, ACT hereby grants to NetSpeak a personal,
non-transferable, non-exclusive, worldwide right and license to: (c) use and
reproduce the ACT Marks, either alone or co-branded with any NetSpeak Marks,
solely in connection with the sale and distribution of the Integrated Product;
and (d) use, reproduce, display the ACT Marks publicly in connection with
demonstration, promotion and advertisement of the Integrated Product. ACT
acknowledges that NetSpeak is the owner of the NetSpeak Marks, whether or not
registered. Similarly, NetSpeak acknowledges that ACT is the owner of the ACT
Marks, whether or not registered. Each party agrees that it has no power or
right and shall not during the term of this Agreement:
(i) attack the title or right of the other party in the
other party's mark;
(ii) claim any right, title or interest in or to the other
party's mark adverse to the other party;
(iii) register or apply for registration of the other party's
mark or any name or mark that incorporates or is confusingly similar to the
other party's mark anywhere in the world without the other party's express
written consent; and
(iv) designate any name or mark that incorporates the other
party's mark as a common law trademark or the like anywhere in the world without
the other party's express written consent.
Further, each party agrees to the use the marks of the other party in accordance
with the guidelines set forth in Schedule F hereto.
13.4 ESCROW. In the event it appears that the parties are not
adequately meeting customer support requirements or that a party may not be able
to meet its obligations hereunder, the parties agree to negotiate in good faith
to set up an escrow agreement to ensure each party can meet its service and
support obligations to its customers.
14. NON-DISCLOSURE, CONFIDENTIALITY, BREACHES AND INJUNCTIVE RELIEF.
14.1 The NetSpeak Software (including, without limitation,
software modules and any future product, modifications, changes, enhancements,
upgrades, revisions, or additions made thereto) is and shall be the sole and
exclusive property of NetSpeak, including all applicable Intellectual Property
rights inherent therein and appurtenant thereto. The ACT Product (including,
without limitation, software modules and any future product, modifications,
changes, enhancements, upgrades, revisions, or additions made thereto) is and
shall be the sole
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and exclusive property of ACT, including all applicable Intellectual Property
rights inherent therein and appurtenant thereto. Accordingly, neither party
shall sell, transfer, publish, disclose, display or otherwise make available to
others any source code or object code, documentation or other material relating
to the other party's products. The parties shall assist one another in
identifying and preventing any use or disclosure of the source code or object
code, or of any portion of the hardware or software, or any of the algorithms or
logic contained therein. Without limitation of the foregoing, the parties shall
immediately notify one another in the event that they learn or have reason to
believe that any person has violated, or intends to violate, the terms of this
Agreement, or, if not bound thereby, intends to infringe upon or dilute the
Intellectual Property in any way whatsoever; and the parties will cooperate in
seeking injunctive or other equitable relief in the name of either ACT or of
NetSpeak against any such person.
14.2 The parties hereby acknowledge that the hardware and
software which are subject to this Agreement, and other items related thereto,
contain proprietary Intellectual Property ("Proprietary Information") of the
respective parties and agree to maintain the confidentiality of the Proprietary
Information in a manner using at least as great a degree of care as the manner
used to maintain the confidentiality of their own most confidential information
and shall similarly bind their employees and consultants in writing. Neither
party shall be obligated under this Section 14.2 with respect to information
that the receiving party can document:
(i) is or has become readily publicly available without
restriction through no fault of the receiving party
or its employees or agents; or
(ii) is received without restriction from a third-party
lawfully in possession of such information and
lawfully empowered to disclose such information; or
(iii) was rightfully in the possession of the receiving
party without restriction prior to its disclosure by
the other party; or
(iv) was independently developed by employees or
consultants of the receiving party without access to
such Proprietary Information.
Each party hereto acknowledges that the disclosure or unauthorized use by it or
any of its employees or agents of any aspect or portion of the hardware or
software, or any Proprietary Information of the other party will give rise to
irreparable injury to such party, which is inadequately compensable in damages.
Accordingly, in order to prevent any disclosure or dilution of the Intellectual
Property or business secrets, the affected party may seek or obtain equitable
relief, including the right to seek injunctive relief in a court of competent
jurisdiction, and each party hereby consents to the obtaining of such injunctive
relief from the court and to the enforcement of such injunctive relief, provided
that the enjoined party is a proper party to, and the other party has standing
to maintain, any such proceedings.
14.3 All of the undertakings and obligations relating to
confidentiality and non-disclosure, whether contained in this paragraph or
elsewhere in this Agreement, and whether of NetSpeak or of ACT, shall survive
the termination of this Agreement for any reason whatsoever.
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15. PERMITS AND APPROVALS. ACT intends to homologate the ACT Product in
various jurisdictions under ACT's name. To the extent permissible, ACT shall
provide NetSpeak with the benefits of the homologation ACT receives. In all
respects, however, NetSpeak shall be responsible for obtaining approvals and
permits for the sale of the NetSpeak Products and ACT shall be responsible for
obtaining approvals and permits for the ACT Product.
16. REPRESENTATIONS AND WARRANTIES.
16.1 NetSpeak represents and warrants that:
(a) For a period of ninety (90) days from first
use, each NetSpeak Product operates and will
operate substantially in accordance with the
specification set forth in the NetSpeak
Documentation for such NetSpeak Products;
(b) The NetSpeak Products and the NetSpeak Marks
and use thereof as contemplated by this
Agreement will not infringe or
misappropriate any copyright, trade secret,
publicity, privacy or other right of any
third party and are not defamatory or
obscene;
(c) NetSpeak has the necessary rights to grant
the rights and licenses contemplated by this
Agreement, without the need for any
consents, approvals or immunities not yet
obtained;
(d) NetSpeak has full power to enter into this
Agreement, to grant the rights and licenses
granted hereunder and to perform its
obligations hereunder; and
(e) to the best of NetSpeak's knowledge, as of
the Effective Date the NetSpeak Products do
not infringe any patent or trademark rights
of any third party.
16.2 ACT represents and warrants that:
(a) ACT's warranty for the Product is attached
hereto as Exhibit C;
(b) The ACT Product and the ACT Marks and use
thereof as contemplated by this Agreement do
not infringe or misappropriate any
copyright, trade secret, publicity, privacy
or other right of any third party and are
not defamatory or obscene;
(c) ACT has the necessary rights to grant the
rights and licenses contemplated by this
Agreement, without the need for any
consents, approvals or immunities not yet
obtained;
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(d) ACT has full power to enter into this
Agreement, to grant the rights and licenses
granted hereunder and to perform its
obligations hereunder; and;
(e) To the best of ACT's knowledge, as of the
Effective Date the ACT Product does not
infringe any patent or trademark rights of
any third party.
16.3 THE WARRANTY STATED ABOVE IS A LIMITED WARRANTY, AND IS
THE ONLY WARRANTY MADE BY THE PARTIES. NETSPEAK AND ACT DO NOT MAKE, AND
NETSPEAK AND ACT HEREBY EACH EXPRESSLY WAIVE ALL OTHER WARRANTIES, WHETHER
EXPRESS OR IMPLIED. NETSPEAK AND ACT SHALL HAVE NO LIABILITY WITH RESPECT TO
THEIR OBLIGATIONS UNDER THIS AGREEMENT, OR OTHERWISE, FOR ANY INDIRECT, SPECIAL,
INCIDENTAL, EXEMPLARY, CONSEQUENTIAL, OR PUNITIVE DAMAGES, EVEN IF THEY HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE ABOVE-STATED EXPRESS
WARRANTY IS IN LIEU OF ALL OTHER LIABILITIES OR OBLIGATIONS OF NETSPEAK OR ACT
FOR DAMAGES THAT MIGHT ARISE OUT OF, OR IN CONNECTION WITH, THE DEVELOPMENT,
DELIVERY, USE, OR PERFORMANCE OF ANY NETSPEAK PRODUCT OR ACT PRODUCT. IN ANY
EVENT, THE LIABILITY OF NETSPEAK TO ACT AND OF ACT TO NETSPEAK FOR ANY REASON
AND UPON ANY CAUSE OF ACTION WHATSOEVER SHALL BE LIMITED TO THE AMOUNT THEN
PREVIOUSLY PAID TO NETSPEAK BY ACT (IN THE CASE OF NETSPEAK) OR ACT BY NETSPEAK
(IN THE CASE OF ACT), AS THE CASE MAY BE, FOR PRODUCTS OR SERVICES HEREUNDER
(EXCEPT FOR A BREACH OF SECTION 14.2 OR WITH RESPECT TO EITHER PARTY'S
OBLIGATIONS OF INDEMNITY UNDER SECTION 17, IN WHICH CASE EACH PARTY'S LIABILITY
SHALL BE LIMITED TO THREE MILLION DOLLARS ($3,000,000)).
16.4 The express warranty contained herein, but not the
exclusions and waivers of warranties contained herein, shall terminate and
become null and void, and shall be of no further force and effect, if (i) any
modifications are made by ACT, or any third party, to any NetSpeak Product,
without the prior written consent of NetSpeak, or (ii) any modifications are
made by NetSpeak, or any third party, to the ACT Product, without the prior
written consent of ACT.
17. INDEMNITY.
17.1 Subject to the conditions set forth in Section 17.3
below, NetSpeak shall indemnify, hold harmless and defend ACT against any claim,
suit or proceeding and any damages and liability therefrom or settlement
therefor (including reasonable fees of attorneys and related costs):
(a) Based on a claim that a NetSpeak Product or
NetSpeak Mark infringes the patent,
copyright, trademark, trade secret,
publicity, privacy, or other right of any
third party, or is defamatory or
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obscene, except to the extent that such
infringement is due solely to (i) the
combination of the NetSpeak Product with the
ACT Product, or (ii) NetSpeak following the
design specifications of ACT, or (iii) a
modification of the NetSpeak Product by
other than NetSpeak, or (iv) use of the
NetSpeak Product that is incidental to an
infringement not resulting primarily from
the NetSpeak Product;
(b) Based on a representation or warranty
concerning a NetSpeak Products set forth in
the NetSpeak Documentation; or
(c) Resulting from any material breach of this
Agreement by NetSpeak.
17.2 Subject to the conditions set forth in section 17.3
below, ACT shall indemnify, hold harmless and defend NetSpeak against any claim,
suit or proceeding and any damages and liability therefrom or settlement
therefor (including reasonable fees of attorneys and related costs):
(a) Based on a claim that the ACT Product or an
ACT Mark infringes the patent, copyright,
trademark, trade secret, publicity, privacy,
or other right of any third party, or is
defamatory or obscene; except to the extent
that such infringement is due solely to (i)
the combination of the ACT Product with a
NetSpeak Product, or (ii) ACT following the
design specifications of NetSpeak, or (iii)
modification of the ACT Product by other
than ACT, or (iv) use of the ACT Product
that is incidental to an infringement not
resulting primarily from the ACT Product;
(b) Based on a representation or warranty
concerning an ACT Products set forth in the
ACT Documentation; or
(c) Resulting from any material breach of this
Agreement by ACT.
17.3 The Indemnifying Party's obligation to defend and
indemnify the Indemnified Party shall be conditioned upon (i) the Indemnified
Party's full cooperation with the Indemnifying Party, at the Indemnifying
Party's expense, in its defense of such claim(s) and (ii) the Indemnifying Party
being allowed to assume sole control over the defense and all negotiations for a
settlement. In no event shall either party settle any such claim, lawsuit or
proceeding without the Indemnifying Party's prior written approval, which
approval shall not be unreasonably withheld. The Indemnifying Party is in no way
authorized to agree to any settlement, compromise or the like which would
require the Indemnified Party make any payment or bear other obligations,
including without limitation, the obligation to make a grant back (but excluding
the obligation to stop using the affected product) without prior written
approval of the Indemnified Party. If, as a result of any such claim, litigation
or threat thereof, either NetSpeak or ACT is permanently enjoined from using any
hardware or software or other
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product, then the Indemnifying Party, at its sole option and expense, may
replace or modify the hardware or software, or other product with a
noninfringing substitute of equivalent performance, functionality and quality,
so as to settle such claim, litigation or threat thereof. If such settlement or
modification is not reasonably practicable, after giving due consideration to
all factors including financial expense, then the Indemnifying Party may
terminate this Agreement upon ninety (90) days' prior written notice to the
Indemnified Party, provided that the Indemnifying Party is not limited by any
settlement or order of any court of competent jurisdiction. The foregoing states
the entire liability of the Indemnifying Party with respect to infringement of
any Intellectual Property. Each party may, but shall have no obligation
hereunder to, maintain insurance coverage for its errors and omissions, in such
amounts as such party shall in its sole discretion determine, from time to time.
The Indemnifying Party shall be relieved of its obligations hereunder to the
extent the Indemnified Party has not provided prompt written notice of a claim
and the lack of such notice has prejudiced the Indemnifying Party's ability to
defend such claim.
18. TERMINATION. This Agreement shall terminate on the fifth (5th)
anniversary of the Effective Date, unless either party has exercised its option
to extend this Agreement for successive one (1) year periods, by providing not
less than one hundred eighty (180) days' written notice prior to the expiration
of the original term or any extension of this Agreement, as the case may be.
Non-payment of the Royalties or any other payment when due under this Agreement,
including non-payment of any invoice for any modification, change, enhancement,
upgrade, revision, or addition to any of the product, or in the event that there
is a material breach of this Agreement, shall also be cause for termination of
this Agreement upon not less than thirty (30) days' prior written notice and
after having been given an opportunity to cure any such default of not less than
thirty (30) days. The termination of this Agreement shall automatically, and
without any further action by the parties, terminate and extinguish the licenses
and any other rights hereunder. In the event of the termination of this
Agreement, then each party shall return all manifestations of, and media and
record embodying, Proprietary Information of the other in its possession,
custody or control. Notwithstanding the foregoing, all provisions hereof
relating to confidentiality shall survive the termination of this Agreement.
19. CUSTOMER LISTS. The parties may agree, from time to time, to the
customer accounts for which each party agrees to act as principal sales agent.
20. FORCE MAJEURE. Neither party shall be liable to the other for any
delay or failure to perform due to causes beyond its reasonable control (such as
war, riots, insurrections, sovereign compulsion, strikes or lock-outs, flood,
fire, earthquake, or natural disasters, or atmospheric conditions), except that
this provision shall not apply to the parties' obligations to pay any sums due
to one another hereunder or to obligations of confidentiality. Performance times
shall be considered extended for a period of time equivalent to the times lost
because of any such delay. The parties will attempt to meet such extended
performance times. If such extended performance times conflict with pre-existing
contractual commitments of the parties to other entities, then the parties shall
so advise one another, and the parties shall use best efforts to agree in
writing to an alternative implementation schedule. If the parties are unable to
agree upon an alternative implementation schedule, or if the delay continues for
a period of (3) months or more, then this Agreement may be terminated by either
party, and neither party shall be liable
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to the other for such termination, provided that the parties pay for all
services rendered and expenses incurred in accordance with the payment
provisions herein.
21. NOTICES. All notices, consents, demands, requests, approvals,
waivers and other communications which are required or may be given hereunder
shall be in writing and shall be deemed to have been duly given five (5) days
after having been mailed to such party by registered mail, return receipt
requested, postage prepaid, or the lesser of three (3) days or the actual date
of receipt if sent by courier or overnight delivery service (E.G., Federal
Express, UPS, DHL), addressed as follows:
if to NetSpeak Robert Kennedy
NetSpeak Communications, Inc.
902 Clint Moore Road, Suite 104
Boca Raton, Florida 33407
with a copy to:
Bookstein & Kudirka, P.C.
One Beacon Street
Boston, Massachusetts 02108
Attention: Bruce D. Jobse, Esq.
if to ACT ACT Networks, Inc.
188 Camino Ruiz
Camarillo, California 93012
Attention: Vice President, Business Development
with a copy to:
Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Attention: Frederic A. Randall, Jr., Esq.
22. BINDING EFFECT. This Agreement shall inure to the benefit of, and
shall be binding upon, each of the parties hereto, their respective heirs,
personal representatives, administrators, successors and assigns.
23. CHOICE OF LAW; VENUE. The validity, interpretation, and enforcement
of this Agreement, and all other instruments and documents executed in
connection with this transaction, shall be governed by the laws of the State of
California, excluding those laws relating to the resolution of conflicts between
laws of different jurisdictions.
24. COMPLIANCE WITH U.S. EXPORT LAWS. Each party hereby agrees to
comply with all export laws and restrictions and regulations of the Department
of Commerce or other United States or foreign agency or authority, and not
knowingly export, or allow the
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export or re-export of any Proprietary Information, ACT Products, NetSpeak
Products or any direct product thereof in violation of such restrictions, laws
or regulations, or, without all required licenses and authorizations, to any
Group D:1 or E:2 country specified in the then-current Supplement No. 1 to
Section 740 of the U.S. Export Administration Regulations (or any successor
supplement or regulations).
25. WAIVER. Any party may, at its discretion, waive in writing any or
all of the conditions herein contained to which its obligations hereunder are
subject, provided that neither failure nor delay on the part of a party to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any singular or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
26. SEVERABILITY. If any provision of this Agreement shall be
determined by a court of competent jurisdiction, or by award of an arbitral
tribunal, and enforced by such a court, to be invalid, illegal or unenforceable,
then such determination shall not affect or impair the validity, legality, or
enforceability of the remaining provisions contained herein.
27. ASSIGNABILITY. This Agreement may not be assigned by either party
without the prior written consent of the other party, which consent shall not be
unreasonably withheld.
28. ENTIRE AGREEMENT; AMENDMENT. This Agreement, together with the
other Exhibits attached hereto which are incorporated herein by this reference,
expresses the
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entire and exclusive understanding of the parties. This Agreement may be
modified or amended only by an instrument in writing executed by an authorized
officer of each of the parties hereto.
29. 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.
IN WITNESS WHEREOF, the parties have executed this Agreement the date
first above written.
NETSPEAK CORPORATION, a Florida corporation
By:/s/ ROBERT KENNEDY
-------------------------------------------------
Name: Robert Kennedy
Title: President
ACT NETWORKS, INC., a Delaware corporation
By:/s/ MELVIN L. FLOWERS
-------------------------------------------------
Name: Melvin L. Flowers
Title: CFO and Vice President,
Finance and Administration
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SCHEDULE A
NETSPEAK PRODUCTS TITLES, DESCRIPTION, AND SPECIFICATIONS
Connection server
Information server
ACDserver
Database server
Credit processing server
Firewall proxy server
Control center
NetSpeak-branded WebPhone client software
NSCP software developer's kit (SDK)
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SCHEDULE B
ACTS PRODUCT TITLES, DESCRIPTION AND SPECIFICATIONS
1. ACT PRODUCTS. The SDM-Rx which is anticipated to be released
commercially in the third calendar quarter of 1997. Software/firmware which is
intended to be incorporated into the SDM-Rx includes:
RX hardware platform
TrueSpeech 8.5 voice algorithm
ACELP 8Kbps voice algorithm
T1/E1, ISDN BRI and analog interfaces
Least cost router interface
Call control interface
Echo canceller
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SCHEDULE C
1. PURCHASE TERMS AND CONDITIONS
(a) ORDERING. NetSpeak shall provide ACT, on a calendar
quarterly basis, with nonbinding, rolling twelve (12) month forecasts of its
requirements for the ACT Products and Integrated Product. NetSpeak will purchase
units of the ACT Products and/or Integrated Product by issuing a written
purchase order indicating model number and quantity of each Integrated Product
and each ACT Product desired, the price, and requested delivery date. All
purchase orders shall be dated, uniquely numbered for identification, reference
this Agreement, incorporate the terms and conditions of this Agreement and be
signed by a duly authorized representative of NetSpeak. The terms and conditions
of this Agreement prevail regardless of any conflicting terms or conditions on
the purchase order. Purchase orders must be received by ACT at least sixty (60)
days prior to the requested delivery date specified on the order, and during the
term of this Agreement. All such purchase orders and delivery dates are subject
to written acceptance by ACT and shall be deemed accepted if in accordance with
the terms of this Agreement and are not rejected in writing by the ACT within
ten (10) days of receipt thereof.
(b) PRICES. The list price for the ACT Products shall be as
determined by ACT in its discretion. All prices are exclusive of any sales,
usage, import, excise, and other taxes (except those specified based upon ACT's
net income), shipping and insurance. Such items, including any withholding taxes
on royalty fees and other costs, when applicable, shall appear as separate items
on ACT's invoices, and shall be paid by NetSpeak. Due to the development efforts
of both parties with respect to the ACT Product and due to the fact that the
products purchased hereunder will, in most cases, be the Integrated Product, it
is ACT's intention to provide NetSpeak with a discount from list price for
purchases of the Integrated Product which are at least as favorable as those
provided to ACT's best customers purchasing the Integrated Product. However, it
is not intended that the pricing of the ACT Product hereunder result in ACT
discounting its products to other third parties as a result of agreements with
such third parties. As such, ACT and NetSpeak will, based upon the foregoing,
agree on the appropriate discount at the time ACT prepares its price list for
the ACT Product.
(c) PAYMENT. All payments shall be made in U.S. currency in
the United States and shall be due within thirty (30) days after delivery to the
carrier or date of invoice, whichever is later. If at any time NetSpeak is
delinquent in the payment of any invoice or is otherwise in breach of this
Agreement, ACT may, in its discretion, withhold shipment (including partial
shipments) of any order or may, at its option, require NetSpeak to pay C.O.D.
for further shipments. A service charge of one and one-half percent (1.5%) per
month (or the maximum rate permitted by law) may be assessed by ACT on payments
more than ten (10) days past due.
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2. RESCHEDULING, SHIPMENT AND DELIVERY
(a) RESCHEDULING. All purchase orders are non-cancelable.
During the first thirty (30) days following the receipt of NetSpeak's purchase
order by ACT, NetSpeak may reschedule the delivery date for such purchase order
without penalty to a date not later than sixty (60) days following the original
scheduled delivery date. Purchase orders may not be rescheduled more than once.
(b) SHIPPING DATES. ACT will provide to NetSpeak a scheduled
delivery date for each purchase order within ten (10) business days after
acceptance of the purchase order. ACT will attempt to deliver the Products by
the requested delivery date, subject to restrictions in manufacturing,
scheduling, material and production availability. ACT will notify NetSpeak of
any delays in delivery as soon as ACT becomes aware of such delay. If deliveries
are made in installments, each shipment shall be paid for when due without
regard to the other scheduled deliveries. In the event ACT notifies NetSpeak of
a delay of five (5) or more days in the scheduled delivery date, NetSpeak shall
have the right to reschedule the delivery date within sixty (60) days of the
originally requested delivery date.
(c) FREIGHT CHARGES. Delivery shall be made F.O.B. at ACT's
plant of manufacture. NetSpeak shall be responsible for all freight, handling
and insurance charges. Unless given written instruction to the contrary, ACT
shall be responsible for and shall select the carrier for all shipments. In no
event shall ACT have any liability in connection with shipment, nor shall the
carrier be deemed to be an agent of ACT.
(d) SECURITY INTEREST. Title to and risk of loss or damage
shall pass from ACT to NetSpeak upon delivery to common carrier or NetSpeak's
representative at the F.O.B. point. Delivery shall be deemed made upon transfer
of possession to the carrier. NetSpeak grants ACT a security interest in the ACT
Products purchased under this Agreement to secure payment for those ACT Products
purchased. If requested by ACT, NetSpeak agrees to execute financing statements,
from time to time, to perfect this security interest.
3. BUYER COVENANTS AND REPRESENTATIONS
Buyer covenants to Seller to:
(a) keep ACT informed as to any problems encountered with the
ACT Products and any resolutions arrived at for those problems.
(b) comply with all export control laws and regulations of the
United States Government, including but not limited to 15 CFR Parts 730-799
Export Administration Regulations of the Department of Commerce, 22 CFR Parts
120-130 International Traffic in Arms Regulations of the Department of State, 31
CFR 500 Foreign Assets Control Regulations of the Department of the Treasury,
and regulations issued under the authority of the Atomic Energy Act of 1954 by
the Nuclear Regulatory Commission or the Department of Energy, or successor
supplement or regulation. NetSpeak shall not export, or allow to be exported or
reexported, any Proprietary Information, or ACT Product in violation of any such
restriction, law
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or regulation. NetSpeak shall maintain applicable records about all exports,
including showing compliance with the regulations pertaining to export to
military entities or for military end-users, and shall obtain and bear all
expenses relating to any necessary licenses and/or exemptions with respect to
the export from the United States of all materials or items deliverable by ACT
to any location and shall demonstrate to ACT compliance with all applicable
export control laws and regulations prior to delivery thereof by ACT.
4. LIMITED WARRANTY AND AFTER WARRANTY SUPPORT
(a) ACT warrants to NetSpeak, and only to NetSpeak, that all
ACT Products shall be free from material defects in materials and workmanship
under normal and proper use, and shall substantially conform to the
specifications to be published by ACT. The fact that the warranty runs only to
NetSpeak does not obviate ACT's obligation to fulfill warranty claims by
NetSpeak which arise from claims by NetSpeak's customers, although all warranty
claims of such customers shall be asserted by NetSpeak. NetSpeak agrees not to
make any other warranty commitment on ACT's behalf beyond those in the foregoing
limited warranty. Such warranty does not apply to units of the Products that
have been mishandled, mistreated, used, maintained or stored in any manner other
than in the conformity with ACT's instructions. The warranty on all ACT Products
which can be identified by shipment will terminate one (1) year after the date
of receipt of such ACT Products by the NetSpeak. With respect to all ACT
Products for which receipt documentation is not available, the warranty shall
terminate one (1) year from the date of the manufacturing date code stamped on
the ACT Product.
(b) Any claim under the warranty must be submitted before the
end of the warranty period to ACT at such address as ACT provides NetSpeak upon
request. The units of the ACT Products subject to a warranty claim must be
securely packaged, insured, and shipped freight prepaid. NetSpeak must obtain a
return authorization number from ACT before shipping any ACT Product, and
include a written description of the defect.
NETSPEAK'S SOLE AND EXCLUSIVE REMEDY FOR ANY BREACH OF THE
FOREGOING WARRANTY SHALL BE REPLACEMENT OF OR (AT ACT'S OPTION OR IF REPLACEMENT
IS IMPRACTICAL) REFUND FOR RETURNED NONCONFORMING UNITS OF THE ACT PRODUCTS FOR
WHICH FULL DOCUMENTATION AND PROOF OF NON-CONFORMITY IS PROVIDED TO ACT WITHIN
ONE (1) YEAR AFTER THE ORIGINAL NON-CONFORMING UNITS ARE RECEIVED BY NETSPEAK.
EXCEPT FOR THE FOREGOING WARRANTIES ACT DOES NOT WARRANT THE MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OF ANY PRODUCT OR PERFORMANCE, DOES NOT MAKE
ANY WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO, PRODUCT, SPECIFICATIONS,
SUPPORT SERVICE OR ANYTHING ELSE AND DOES NOT MAKE ANY WARRANTY TO NETSPEAK'S
DISTRIBUTORS, CUSTOMERS OR AGENTS. ACT HAS NOT AUTHORIZED ANYONE TO MAKE ANY
REPRESENTATION OR WARRANTY OTHER THAN AS PROVIDED ABOVE.
(c) In the event that any ACT Product is returned to ACT under
the provisions of this Section, ACT will use commercially reasonable efforts to
repair or replace such ACT Product, at ACT's sole expense, within ten (10) days
of the receipt of such Product by ACT.
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Transportation costs incurred with respect to the return of such Product shall
be borne by NetSpeak when returned to ACT, and by ACT when returned to NetSpeak.
ACT Products repaired by the ACT under the warranty provisions hereof shall be
warranted for a period of ninety (90) days or the remainder of the original
warranty period, whichever is greater.
(d) If NetSpeak wishes to have any ACT Product repaired other
than under the warranty provisions herein, ACT agrees to repair such ACT Product
at ACT's then-current standard published repair rates (without discounts), and
NetSpeak shall reimburse ACT for all travel, room, board or other expenses
incurred by ACT in connection therewith.
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SCHEDULE D
NETSPEAK CORPORATION LICENSE AGREEMENT
(PRODUCT NAME) (RELEASE/VERSION NUMBER)
BY INSTALLING AND RUNNING THIS SOFTWARE PROGRAM YOU AGREE TO BE BOUND BY THE
TERMS AND CONDITIONS OF THIS AGREEMENT. IF YOU DO NOT AGREE TO THE TERMS OF THIS
AGREEMENT, DO NOT CONTINUE THIS INSTALLATION AND DELETE ANY PORTIONS OF THIS
SOFTWARE ALREADY INSTALLED ON YOUR SYSTEM.
LICENSE GRANT
NetSpeak Corporation ("NetSpeak") grants to You a non-exclusive license under
Copyrights to use its (Product Name/Release) software ("Software Product") on a
single computer at any one time. The Software Product is in use on a computer
when it is resident in memory (I.E., RAM) or when executable or other files are
installed on the hard drive or other storage device of the computer.
You may not, or may not permit other individuals to, copy, modify, translate,
reverse engineer, decompile, disassemble, or create derivative works from the
Software Product, or remove any proprietary notices or labels on the Software
product, including copyright, trademark or patent pending notices.
SOFTWARE PRODUCT
NetSpeak reserves the right to at any time alter prices, features, capabilities,
functions, licensing terms, release dates, general availability or any other
characteristics of the Software Product as NetSpeak sees fit.
TITLE
Title, ownership rights, and intellectual property rights in and to the Software
Product remain with NetSpeak. The Software Product is protected by the copyright
and patent laws of the United States and international copyright treaties.
You acknowledge and agree that the Software Product contains proprietary and
confidential information of NetSpeak. You agree to protect the confidential and
proprietary nature of the Software Product in the same manner that You protect
Your own confidential information of like value, provided that You will in all
cases use reasonable care to protect the Software Product.
LIMITED WARRANTY
NETSPEAK WARRANTS THAT THE SOFTWARE PRODUCT WILL PERFORM SUBSTANTIALLY IN
ACCORDANCE WITH THE ACCOMPANYING DOCUMENTATION FOR A PERIOD OF NINETY (90) DAYS
FROM DATE OF FIRST USE. SOME STATES AND JURISDICTIONS DO NOT ALLOW LIMITATION ON
THE DURATION OF IMPLIED WARRANTIES, SO THE ABOVE LIMITATION MAY NOT APPLY TO
YOU. EXCEPT AS EXPRESSLY PROVIDED HEREIN THERE ARE NO WARRANTIES, CONDITIONS OR
REPRESENTATIONS EXPRESS OR IMPLIED BY STATUTE, USAGE, CUSTOM OF THE TRADE OR
OTHERWISE WITH RESPECT TO THE SOFTWARE PRODUCT LICENSED BY NETSPEAK HEREUNDER,
INCLUDING BUT NOT LIMITED TO, WARRANTIES OR REPRESENTATIONS OF WORKMANSHIP,
MERCHANTABILITY, SUITABILITY OR FITNESS FOR A PARTICULAR PURPOSE, DURABILITY OR
NONINFRINGEMENT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, NETSPEAK DOES
NOT WARRANT THAT THE SOFTWARE PRODUCT WILL MEET ALL OF YOUR NEEDS OR THAT
OPERATION OF THE SOFTWARE PRODUCT WILL BE ERROR FREE. THIS LIMITED WARRANTY
CONSTITUTES AN ESSENTIAL PART OF THIS AGREEMENT.
CUSTOMER REMEDY
NETSPEAK AND ITS SUPPLIERS' ENTIRE LIABILITY AND YOUR EXCLUSIVE REMEDY SHALL BE,
AT NETSPEAK'S OPTION TO EITHER (A) REFUND THE LICENSE FEE, OR (B) REPAIR OR
REPLACE THE SOFTWARE PRODUCT THAT DOES NOT MEET NETSPEAK'S LIMITED WARRANTY.
THIS LIMITED WARRANTY IS VOID IF FAILURE OF THE SOFTWARE PRODUCT HAS RESULTED
FROM ACCIDENT, ABUSE, OR MISAPPLICATION. ANY REPLACEMENT SOFTWARE PRODUCT UNDER
THE LIMITED REMEDY WILL BE WARRANTED FOR THE REMINDER OF THE ORIGINAL WARRANTY
PERIOD OR THIRTY (30) DAYS, WHICH EVER IS LONGER.
LIMITATION OF LIABILITY
UNDER NO CIRCUMSTANCES AND UNDER NO LEGAL THEORY, WHETHER IN TORT, CONTRACT, OR
OTHERWISE, SHALL NETSPEAK OR ANY OTHER PERSON BE LIABLE FOR ANY DIRECT,
INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY
CHARACTER INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK
STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL OTHER COMMERCIAL
DAMAGES OR LOSSES, EVEN IF NETSPEAK HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN NO EVENT WILL NETSPEAK BE LIABLE FOR ANY DAMAGES WHATSOEVER IN
EXCESS OF THE AMOUNT PAID FOR THE SOFTWARE PRODUCT THAT IS THE SUBJECT MATTER OF
THE CLAIM OR THAT IS DIRECTLY RELATED TO THE CAUSE OF ACTION.
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TERM
This Agreement shall become effective upon your installation of the Software
Product and shall terminate automatically upon breach of this Agreement by you,
if any. NetSpeak may terminate this Agreement at any time, for any reason,
however, NetSpeak may refund a prorated portion of the license fee upon any such
termination, at NetSpeak's discretion.
MISCELLANEOUS
If any provision of this Agreement is held to be unenforceable for any reason,
such provision shall be reformed only to the extent necessary to make it
enforceable. This Agreement shall be governed by and construed under Florida
law, except as preempted by United States Federal law. The application the
United Nations Convention of Contracts for the International Sale of Goods is
expressly excluded.
You shall comply with all export regulations pertaining to the Software Product
in effect from time to time. In particular, without limiting the generality of
the foregoing, You hereby warrant that you will not directly or indirectly
export, re-export or transship the Software Product or such other information,
media or products in violation of or otherwise in contravention of the export
laws, rules and regulations.
U.S. GOVERNMENT RESTRICTED RIGHTS
Use, duplication or disclosure by the Government is subject to restrictions set
forth in subparagraphs (a) through (d) of the Commercial Computer-Restricted
Rights clause at FAR 52,227-19 when applicable, or in subparagraph (c)(1)(ii) of
the Rights in Technical Data and Computer Software clause at DFARS 252,227-7013,
and in similar clauses in the NASA FAR Supplement.
CUSTOMER SUPPORT
Unless you have entered into a separate support and maintenance agreement with
NetSpeak, you shall receive technical support during the term of this Agreement
in accordance with the NetSpeak software support policy in effect for the
Software Product. For technical support related to the Software Product call
NetSpeak Corp. at (561) 998-8000.
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SCHEDULE E
ACT NETWORKS END-USER LICENSE AGREEMENT
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SCHEDULE F
GUIDELINES FOR USING NETSPEAK MARKS AND ACT MARKS
1.1 These guidelines ("Guidelines") set forth the proper treatment and use of
the Trademarks on or in association with NetSpeak's Products and the ACT
Product, hereafter "Products." Compliance with these guidelines is the sole
responsibility of each respective party. In the event of a conflict between the
provisions of this Schedule and the Agreement, the Agreement shall control.
2.0 Use of Trademarks
2.1 The Trademarks may only be used on the Products, its packaging, collateral
documentation and in advertising for the Products. The Trademarks 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
party owning the mark.
2.2 The Trademarks may not be used as part of or in any emblem or insignia.
2.3 The Trademarks 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
Trademarks may not be:
2.3.1 displayed in a striking and solitary manner by the other party;
2.3.2 made more prominent than the remainder of the text in which the
Trademarks are used by the other party;
2.3.3 as prominent or more prominent than the trademark or company name
of either party;
2.3.4 used as part of the name or other identifier of a business,
product, or service not connected with the Products.
2.4 At the first or a prominent occurrence of the Trademark in advertising, it
should be symbolically indicated that the marks are trademarks. In the United
States, this is usually done by using the symbol "/Trademark" or "/Registered
trademark/" with the same footnote. Note that in some countries, a translated
version of the U.S. trademark attribution is not only used, 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 Each party will provide to the other party camera-ready artwork of its
respective marks. The other party may not alter this artwork in any way
whatsoever.
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2.6 A party may only reproduce the Trademarks in accordance with the
instructions included on the camera-ready artwork. The Trademarks artwork may
not be recreated in any way. Each party may resize the other party's trademarks
using photographic proportional processes.
2.7 Each party agrees not to use any trademark, service mark or tradename in
combination with the Trademark of the other party without prior written approval
of the other party. A minimum border must be placed around the Trademarks equal
to one half of the Trademark's largest dimension.
2.8 Each party may conduct spot checks of the 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 Each party must correct any deficiencies in their use of the trademarks on
the Products or in advertising, and cease and desist from further publication or
distribution of the offending materials upon reasonable notice from the other
party.
2.10 The accuracy and appropriateness of all claims used in advertising or
promotional materials which includes the Trademarks is the sole responsibility
of the party using the mark even if the other party is aware of the
advertisement or promotional materials.
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 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
May 27, 1997
