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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 0-22521
NETSPEAK CORPORATION
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0627616
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
902 CLINT MOORE ROAD, SUITE 104
BOCA RATON, FLORIDA 33487
(561) 997-4001
(Address including zip code and
telephone number (including area
code) of principal executive office)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par
value $.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates
of the registrant was approximately $149,066,638 as of February 27, 1998, based
upon the closing sale price of the Common Stock as quoted on the Nasdaq National
Market. This amount excludes an aggregate of 5,934,879 shares of Common Stock
held by executive officers, directors and by each entity that owns 5% or more of
the Common Stock outstanding at February 27, 1998.
The number of shares of the registrant's Common Stock outstanding as of
February 28, 1998 was 12,113,807.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Stephen R. Cohen.................... 55 Chairman of the Board and Chief Executive
Officer
Robert Kennedy...................... 49 President, Chief Operating Officer and
Director
Shane D. Mattaway................... 41 Chief Scientist and Director
John W. Staten...................... 31 Chief Financial Officer, Assistant Secretary
and Director
Steven F. Mills..................... 43 Senior Vice President of Advanced Technology
Development
Harvey Kaufman...................... 66 Executive Vice President, Secretary and
Treasurer
Randall Battat...................... 38 Director
Stephen P. Earhart.................. 49 Director
Michael B. Goldberg(1).............. 51 Director
Steven D. Leeke(2).................. 36 Director
A. Jeffry Robinson(1)............... 55 Director
Martin Shum(2)...................... 49 Director
</TABLE>
- ----------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
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 the Company, 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.
<PAGE>
SHANE D. MATTAWAY co-founded Internet Telephone Company ("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. In
February 1998, Mr. Mattaway became the Company's Chief Scientist. 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 has served as Chief Financial Officer and Assistant
Secretary since February 1996 and was appointed a director of the Company in
April 1998. From 1990 to January 1996, Mr. Staten was employed by Deloitte &
Touche LLP, a public accounting firm, most recently as a Manager focusing on the
retail and technology sectors.
STEVEN F. MILLS has been Senior Vice President of Advanced Technology
Development for the Company since February 1998. From October 1996 to February
1998, he served as the Company's Vice President of Marketing. Prior to joining
NetSpeak, Mr. Mills was employed by Boca Research, Inc., a developer and
manufacturer of modems, from April 1995 to October 1996, 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 the Company 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 AG ("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.
RANDALL BATTAT was appointed to the Company's Board of Directors in
April 1998 as the designee of Motorola. Mr. Battat is currently Senior Vice
President and General Manager of Motorola's Information Systems Group. He joined
Motorola in February 1994 as Corporate Vice President and General Manager of its
Wireless Data Group. From 1981 until joining Motorola, Mr. Battat was employed
in various positions at Apple Computer, Inc., including Vice President of that
company's Macintosh Desktop and Powerbook Division.
STEPHEN P. EARHART was appointed to the Company's Board of Directors in
April 1998 as the designee of Motorola. Mr. Earhart is currently a Senior Vice
President of Finance with Motorola. He joined Motorola in 1978 and has held
numerous progressive positions in Motorola's financial organization, principally
in the cellular, network operations and space infrastructure areas. Mr. Earhart
also serves as a director of Harris Bank Libertyville.
MICHAEL B. GOLDBERG became a director of the Company upon consummation
of the Company's initial public offering in June 1997. 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. Prior thereto, he
was a partner in Skadden, Arps, Slate, Meagher & Flom. Mr. Goldberg is also a
director of Hosiery Corporation of America, Inc.
STEVEN D. LEEKE was appointed to the Company's Board of Directors in
November 1996 as the designee of Motorola. Mr. Leeke is currently the Director
and General Manager of Internet Content and Service Businesses within Motorola
New Enterprises. He joined Motorola in March 1995 as Director of Strategy for
New Enterprises. In 1988 he joined Texas Instruments: first as a member of their
Corporate Research Development & Engineering Department; then as Branch Manager,
Production Management Decision Systems; and finally as Manager of Strategic
Development, Semiconductor Group Research & Development, reporting to the Chief
Technical Officer.
A. JEFFRY ROBINSON has served as a director of the Company since
December 1995. Since April 1996, Mr. Robinson has been a partner in the law firm
of Broad and 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.
2
<PAGE>
MARTIN SHUM became a director of the Company upon consummation of the
Company's initial public offering in June 1997, as the designee of ACT. 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.
In March 1998, Stephen R. Cohen, Robert Kennedy, Shane D. Mattaway,
Harvey Kaufman, John W. Staten and Steven F. Mills (collectively, the
"Management Shareholders"), Motorola and the Company entered into a Voting
Agreement (the "Voting Agreement") pursuant to which Motorola has the right to
designate certain nominees to the Company's Board of Directors and, for as long
as the Voting Agreement is in effect, the Management Shareholders will vote in
favor of Motorola's designees, and Motorola will vote in favor of each
Management Shareholder nominated by the Company to the Board of Directors. See
"Certain Transactions -- Transactions with Motorola."
See "Certain Relationships and Related Transactions -- Transactions
with ACT" with respect to ACT's right to designate a nominee to the Board of
Directors.
There are no family relationships among the Company's directors and
executive officers.
The Company's executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board. The Company's directors hold
office until the next annual meeting of shareholders and until their successors
have been duly elected and qualified.
COMPENSATION OF DIRECTORS
The Company pays non-employee directors a fee of $1,000 per meeting of
the Board of Directors or committee thereof attended and provides non-employee
directors with annual grants of stock options under the 1995 Plan to purchase
5,000 shares of Common Stock. Directors are also reimbursed for travel and
lodging expenses in connection with their attendance at meetings. In August
1997, each of Michael B. Goldberg, A. Jeffry Robinson and Martin Shum were
granted ten-year options under the 1995 Plan to purchase 5,000 shares of Common
Stock at an exercise price of $8.125 per share.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors and holders of more than
ten percent of the Company's Common Stock, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission. Such persons
are required to furnish the Company with copies of all Section 16(a) forms they
file.
Based solely on its review of the copies of such forms received by it,
or oral or written representations from certain reporting persons that no Forms
5 were required for those persons, the Company believes that, with respect to
the fiscal year ended December 31, 1997 ("Fiscal 1997"), all filing requirements
applicable to its executive officers, directors and greater than ten percent
beneficial owners were complied with.
3
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following compensation table sets forth, for the fiscal years ended
December 31, 1995, 1996 and 1997, the cash and certain other compensation paid
by the Company to the Company's Chief Executive Officer ("CEO") and the four
most highly compensated other executive officers whose annual salary and bonus
exceed $100,000 during Fiscal 1997 (together with the CEO, collectively, the
"Named Executive Officers"):
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------- ------------------------
SECURITIES UNDERLYING ALL OTHER
FISCAL SALARY BONUS OPTION/SARS(1) COMPENSATION(2)
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- --------------------------------- ------------ -------------- -------------- ------------------------ -------------------
<S> <C> <C> <C> <C> <C>
Stephen R. Cohen 1997 190,776 90,000 -- 7,200
Chairman and CEO 1996 43,080 -- 300,000 1,662
1995 -- -- -- --
Robert Kennedy(3) 1997 165,507 70,000 -- 8,150
President and 1996 35,367 -- 250,000 1,662
Chief Operating Officer --
Shane D. Mattaway(4) 1997 129,670 50,000 -- 8,150
Chief Scientist 1996 109,171 -- 100,000 1,662
1995 101,462 -- 150,000 --
John W. Staten(5) 1997 99,246 50,000 -- 8,150
Chief Financial Officer 1996 63,261 -- 100,000 1,662
Steven F. Mills(6) 1997 124,664 32,500 -- 950
Senior Vice President of 1996 18,461 -- 100,000 --
Advanced Technology
Development
</TABLE>
- ----------
(1) Represents options to purchase Common Stock granted to the Named
Executive Officer under the 1995 Plan.
(2) The dollar amount represents a car allowance and/or Company
contributions to the Company's 401(k) plan.
(3) Mr. Kennedy joined the Company in March 1996.
(4) Mr. Mattaway joined the Company as Executive Vice President and Chief
Technical Officer in December 1995 and became Chief Scientist in
February 1998.
(5) Mr. Staten joined the Company in February 1996.
(6) Steven F. Mills joined the Company in October 1996 as Vice President of
Marketing and became Senior Vice President of Advanced Technology
Development in February 1998.
4
<PAGE>
STOCK OPTIONS HELD AT END OF FISCAL 1997
The following table indicates the total number and value of exercisable
and unexercisable stock options held by each of the Named Executive Officers
listed as of December 31, 1997. No options to purchase stock were exercised by
any of the Named Executive Officers in Fiscal 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END
---------------------------------------- -----------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE(1) UNEXERCISABLE
- -------------------------------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Stephen R. Cohen................ 300,000 0 $6,787,500 0
Robert Kennedy.................. 250,000 0 5,656,250 0
Shane D. Mattaway............... 250,000 0 5,881,250 0
John W. Staten.................. 80,000 20,000 1,810,000 452,500
Steven F. Mills................. 33,334 66,666 654,880 1,308,320
</TABLE>
- ----------
(1) Based on The Nasdaq National Market closing price for the Company's Common
Stock on December 31, 1997 of $25.125 per share.
COMPENSATION COMMITTEE, INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is presently comprised of Michael B.
Goldberg and A. Jeffry Robinson. Mr. Robinson is a partner of the 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.
EMPLOYMENT AGREEMENTS
Effective October 1996, the Company entered into employment agreements
with Stephen R. Cohen, Robert Kennedy, Shane D. Mattaway, John W. Staten 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
currently provide for annual salaries set at $275,000, $250,000, $155,000,
$150,000, and $110,000 for Messrs. Cohen, Kennedy, Mattaway, Staten and Kaufman,
respectively.
Each employment agreement provides that the executive officer who is a
party thereto (the "Executive Officer") will continue to receive his salary for
a period of two years after termination of employment, if his employment is
terminated by the Company for any reason other than death, disability or Cause
(as defined in the employment agreement), or for a period of 12 months after
termination of the agreement as a result of the Executive Officer's disability,
and the Executive Officer's 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, the Company's Senior Vice President of Advanced Technology
Development, 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' employment agreement currently
provides for an annual salary set at $200,000 and contains confidentiality and
non-competition provisions.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant stock options during Fiscal 1997 to any of
the Named Executive Officers.
5
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 1998, information with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person who is known by the Company to beneficially own 5% or more of the
Company's outstanding Common Stock, (ii) the Company's Chief Executive Officer
and each of the other "Named Executive Officers" (as defined below in "Executive
Compensation--Summary Compensation Table"), (iii) each director of the Company,
and (iv) all directors and executive officers of the Company as a group. The
Company is not aware of any beneficial owner of more than 5% of the outstanding
Common Stock other than as set forth in the following table.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES
OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) % OF CLASS OUTSTANDING
---------------------- --------------------- ----------------------
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
<S> <C> <C>
Stephen R. Cohen(3)........................ 600,000 4.8
Robert Kennedy(4).......................... 270,000 2.1
Shane D. Mattaway(5)....................... 748,000 6.0
John W. Staten(6).......................... 75,000 *
Steven F. Mills(7)......................... 23,334 *
Randall Battat(8).......................... -0- -0-
Stephen P. Earhart(8)...................... -0- -0-
Michael B. Goldberg(9)..................... 5,000 *
Steven D. Leeke(8)......................... -0- -0-
A. Jeffry Robinson(10)..................... 80,000 *
Martin Shum(9)............................. 5,000 *
All directors and executive officers
as a group (12 persons)(11)................ 1,889,668 14.2
5% OR GREATER HOLDERS
Bay Networks, Inc.......................... 1,334,171 10.8
4401 Great America Parkway
Santa Clara, California 95054
Motorola, Inc.............................. 3,909,178 31.8
1303 E. Algonquin Road
Schaumburg, Illinois 60196
</TABLE>
- ----------------------------
*Less than 1%.
(1) Except as indicated, the address of each person named in the table is
c/o the Company, 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 Report.
(3) Includes 300,000 shares of Common Stock issuable upon the exercise of
stock options.
(4) Represents 250,000 shares of Common Stock issuable upon the exercise of
stock options and 20,000 shares of Common Stock issuable upon the
exercise of stock options held by Mr. Kennedy's spouse.
6
<PAGE>
(5) Includes 250,000 shares of Common Stock issuable upon the exercise of
stock options.
(6) Represents 75,000 shares of Common Stock issuable upon the exercise of
stock options.
(7) Represents 23,334 shares of Common Stock issuable upon the exercise of
stock options.
(8) Does not include the shares of Common Stock beneficially owned by
Motorola, which shares Mr. Leeke, disclaims beneficial ownership.
(9) Represents 5,000 shares of Common Stock issuable upon exercise of stock
options.
(10) Represents 80,000 shares of Common Stock issuable upon the exercise of
stock options.
(11) Includes (i) the shares of Common Stock described in notes (3) through
(10) and (ii) 50,000 shares of Common Stock held by Harvey Kaufman and
33,334 shares of Common Stock issuable upon the exercise of stock
options held by Mr. Kaufman.
7
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTION WITH ACT
In May 1997, the Company entered into a Technology Development and
License Agreement with ACT pursuant to which the Company is adapting certain of
its software modules to execute on ACT's hardware products and granted ACT a
license to distribute a variety of the Company's products to ACT customers. ACT
and the Company are also seeking to integrate their respective technologies into
a bundled solution to be distributed and marketed by both of them. The Company
granted ACT the right to designate one member of the Company's Board of
Directors for a period of two years through June 1999. ACT also purchased
228,571 shares of Common Stock in the Company's initial public offering in June
1997 and in March 1998, sold all such shares of Common Stock in open market
transactions.
TRANSACTION WITH BAY NETWORKS, INC.
In January 1998, the Company signed an OEM and Joint Development Agreement
with Bay Networks, Inc. ("Bay") to provide voice and fax-over-IP solutions to
Bay and its customers. In conjunction with the aforementioned agreement, the
Company and Bay entered into a stock purchase agreement ("Purchase Agreement")
pursuant to which Bay purchased 1,334,171 shares of the Company's Common Stock
from the Company for approximately $37.6 million. Pursuant to the Purchase
Agreement, if the Company issues additional shares of Common Stock, Bay will
have the right, in certain circumstances, to purchase additional shares of the
Company's Common Stock so as to maintain its percentage ownership in the Company
(up to approximately 9% on a fully diluted basis). Bay is also entitled to
information and observer rights with respect to meetings of the Company's Board
of Directors and executive committee, if any, and was also accorded registration
rights under the Securities Act of 1933, as amended (the "Securities Act") with
respect to the shares of Common Stock purchased.
TRANSACTIONS WITH 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 the Company's technology as it applies
to the cellular, cable and wireless communications industries. The Company also
granted Motorola the right to designate one member of the Company's Board of
Directors and issued to Motorola a warrant to purchase 452,855 shares of the
Common Stock at a price of $5.50 per share. The aforementioned warrant was
exercised contemporaneously with the Company's initial public offering in June
1997.
In March 1998, the Company and Motorola agreed to expand their strategic
alliance and entered into a Joint Development and License Agreement (the
"License Agreement"). In order to increase its equity interest in the Company,
in March 1998, Motorola commenced a public tender offer (the "Offer") to
purchase up to 3,000,000 shares of Common Stock, at a purchase price of $30.00
per share, net to the seller in cash, and agreed to purchase from John W. Staten
and Steven F. Mills, 25,000 and 10,000 shares of Common Stock, respectively. On
April 22, 1998 the Offer was consummated resulting in the purchase by Motorola
of 2,686,470 shares of Common Stock from shareholders of the Company, including
1,400,000, 500,000, 330,000, 200,000 and 100,000 shares of Common Stock from
Stephen R. Cohen, Robert Kennedy, Shane D. Mattaway, Harvey Kaufman and A.
Jeffry Robinson, respectively. On April 27, 1998, therewith, Motorola
consummated the purchase of 25,000 and 10,000 shares of Common Stock from John
W. Staten and Steven F. Mills, respectively.
Concurrently with the Offer, the Company, Motorola and the Management
Shareholders entered into the Voting Agreement, and the Company and Motorola
entered into a Standstill and Participation Rights Agreement (the "Standstill
and Participation Agreement") and an Amended and Restated NetSpeak Corporation
Investor's Rights Agreement (the "Investor's Rights Agreement"). The following
summarizes the terms of the License Agreement, the Voting Agreement, the
Standstill and Participation Agreement and the Investor's Rights Agreement.
THE LICENSE AGREEMENT
Pursuant to the License Agreement, the Company granted to Motorola a
non-transferable, perpetual, exclusive, royalty-bearing world-wide right and
license under the Company's intellectual property (i) to modify NetSpeak
Products (defined below) to create RF Products (defined below) and to use and
license in object code form, the RF Products, (ii) to manufacture RF Products
and use, sell or otherwise distribute RF Products, and (iii) to use the source
code of the NetSpeak Communication Protocol Module including future upgrades to
create RF Products to copy, perform, use, display, license and distribute in
object code form, such RF Products. The Company also granted Motorola
non-exclusive licenses with respect to NetSpeak Products.
8
<PAGE>
The Company retains the right to directly license or otherwise deal with a
third party for joint development, development of derivative works, or the
integration of the Company's generally available products so long as the actual
or intended use of the results of such effort does not include RF wireless links
to end-users or RF coax links to end-users.
Subject to the terms and conditions of the License Agreement, Motorola
agreed to pay royalties (determined within 30 days of the execution of the
License Agreement), to the Company on fair, reasonable, most-favored customer
and competitive rates and terms for similar quantities and under similar
conditions. Under the License Agreement, Motorola will be obligated to pay the
Company a minimum amount of, subject to the Company complying with a minimum
revenue test as set forth in the License Agreement, $2,500,000 for NetSpeak
Products sold during the period from March 18, 1998 until Product Acceptance
(defined below), $2,500,000 during the first anniversary following Product
Acceptance, $10,000,000 during the second year anniversary following Product
Acceptance and $15,000,000 during the third year following the Product
Acceptance.
For purposes of the License Agreement the terms: EXCLUSIVE shall mean to
the exclusion of all other parties including the Company; NETSPEAK HARDWARE
shall mean the NetSpeak Stargate Product and any other hardware of the Company
and future hardware products (including any updates and upgrades) created by the
Company, and any technical know-how therefor; NETSPEAK PRODUCTS shall mean the
NetSpeak Software, NetSpeak Hardware and future products; NETSPEAK SOFTWARE
shall mean any and all the Company's real-time communication software, Stargate
Product software, other Company's computer program products and future software
products (including any update and upgrades) created by NetSpeak, including
source code, and any technical know-how therefor; PRODUCT ACCEPTANCE shall mean
the date of acceptance by Motorola of the Stargate product conforming to jointly
agreed upon product requirements; RF means the electromagnetic spectrum between
and including 10 kilohertz to 1 terahertz; RF PRODUCTS shall mean RF Wireless
Products and RF Wireline Products which constitute a Derivative Work, alteration
or modification of the NetSpeak Products; RF WIRELESS PRODUCT(S) shall mean any
software, firmware, hardware, or combination thereof for use in RF wireless
networks (including, without limitation, cellular/PCS, trunked two-way
conventional two-way, iDEN two-way, paging, satellite and future wireless
networks) and an infrastructure equipment and subscriber/client devices
associated with any of the foregoing; and RF WIRELINE PRODUCT(S) shall mean any
software, firmware, or hardware, or combination thereof, for use with a RF
wireline infrastructure (including, without limitation, cable data networks) and
all subscriber devices associated therewith (including, without limitation,
cable data modems).
THE VOTING AGREEMENT
The Voting Agreement grants Motorola the right to designate two additional
directors to the Company's Board of Directors. Motorola's rights under the
Voting Agreement continue until Motorola owns less than 7% of the outstanding
shares of Common Stock; provided, however, at any time Motorola owns less than
26% but more than or equal to 7% of the shares of Common Stock, Motorola has the
right to designate two designees to the Company's Board of Directors. If the
Company's increases the size of its Board of Directors to more than 10
directors, Motorola has the right to designate a proportionate number of
designees in accordance with the foregoing formula.
Pursuant to the Voting Agreement, the Management Shareholders agreed for a
period of three years following the consummation of the Offer, to retain no less
than 30% of their beneficial ownership of the shares of Common Stock owned by
them, respectively, as of March 18, 1998. To the extent Motorola decreases the
percentage of the shares of Common Stock, the percentages set forth in the
preceding sentence will decrease proportionately. So long as the Voting
Agreement is in effect each of the Company and the Management Shareholders will
vote for Motorola's designees to the Company's Board of Directors and Motorola
will vote in favor of each of the Management Shareholders nominated by the
Company to its Board of Directors.
THE STANDSTILL AND PARTICIPATION AGREEMENT
STANDSTILL. Pursuant to the Standstill and Participation Agreement,
Motorola agreed for a period commencing on the Effective Date (as defined below)
and ending on the earlier of the third anniversary of the Effective Date or the
occurrence of a Purchase Designated Event (as defined below) not to acquire
shares of Common Stock; solicit proxies or become a participant in a
solicitation with respect to an election contest involving the Company's Board
of Directors or solicit any shareholder proposal to effect a change of control
of the Company; join or form any group for the purpose of acquiring Common
Stock; or make any public proposals to the Company regarding any Acquisition
Transaction (as defined below) relating to the Company with Motorola. The
preceding provisions shall not be effective upon the occurrence of a Purchase
Designated Event.
AGREEMENT NOT TO SELL VOTING SECURITIES. Except pursuant to the consent of
the Company's Board of Directors, Motorola agreed for a period commencing on the
Effective Date and ending on the earlier of the 18th month anniversary thereof
or the occurrence of a Sale Designated Event (as defined below) not to sell any
voting securities of the Company. Further, except pursuant to the consent of the
Company's Board of Directors and if a Sale Designated Event has not occurred
prior to the date which is 18 months
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following the Effective Date, then for the period commencing on the date which
is the 18th month anniversary of the Effective Date and until the three year
anniversary of the Effective Date, Motorola shall not offer, sell, or transfer
any voting securities of the Company except (a) to an affiliate or subsidiary of
Motorola (b) pursuant to a bona fide public offering, registered under the
Securities Act, of voting securities of the Company, (c) pursuant to Rule 144
under the Securities Act, (d) to a party or parties which are approved by the
Company, or (e) without restriction at any time in which Motorola beneficially
owns less than 10% of the voting securities of the Company. The preceding
provisions shall not be effective upon the occurrence of a Sale Designated
Event.
PARTICIPATION RIGHTS. Subject to the terms and conditions of the
Standstill and Participation Agreement, the Company granted to Motorola a right
of participation with respect to future sales by the Company of its shares of
Common Stock.
Under the Standstill and Participation Agreement the term Sale Designated
Event means any of the following: (i) the Company reaches agreement with a third
party concerning an Acquisition Transaction with respect to the Company; (ii)
the Company reaches agreement with Motorola concerning an Acquisition
Transaction with respect to the Company; (iii) a material default by the Company
under the License Agreement shall have occurred and shall not have been cured as
provided in the License Agreement; (iv) any of the Company's officers shall, at
any time while employed by the Company or engaged by the Company in a consulting
or similar capacity, fail to beneficially own that percentage of voting
securities of the Company which exceeds 30% of the percentage of voting
securities of the Company beneficially owned by such individual as of March 18,
1998, it being understood that such 30% requirement shall decrease by one
percentage point for each percentage point decrease, if any, in the percentage
of outstanding voting securities of the Company beneficially owned by Motorola;
(v) either Stephen R. Cohen or Robert Kennedy shall cease to be employed by the
Company in their current positions or in positions of greater authority (other
than due to death or permanent disability); (vi) Stephen R. Cohen and Robert
Kennedy shall each cease to be employed by the Company due to their death or
permanent disability; (vii) the number of members of the Board of Directors of
the Company designated by Motorola is less than 20% of the aggregate number of
members of the Board of Directors of the Company then serving at any time during
which Motorola's beneficial ownership of voting securities of the Company
exceeds 7% of the then outstanding voting securities of the Company and is less
than 26% of the then outstanding voting securities of the Company (it being
understood that this clause shall not take effect until the 10th day following
the Effective Date); (viii) the number of members of the Board of Directors of
the Company designated by Motorola is less than 30% of the aggregate number of
members of the Board of Directors of the Company then serving at any time during
which Motorola's beneficial ownership of voting securities of the Company
exceeds 26% of the then outstanding voting securities of the Company; or (ix) a
plan of liquidation or dissolution is adopted or a receiver or trustee in
bankruptcy is appointed with respect to the Company.
Under the Standstill and Participation Agreement, the term Acquisition
Transaction shall mean any transaction not contemplated by the Standstill and
Participation Agreement involving: (i) any sale or other disposition of all or
substantially all of the assets of such party in any one transaction or in a
series of related transactions; or (ii) any merger, consolidation or similar
transaction or series of related transactions which results in the shareholders
of such party immediately before such transaction holding less than 50% of the
outstanding voting securities of such party immediately after such transaction.
The term Purchase Designated Event means any of the following: (i) the Company
reaches agreement with a third party concerning an Acquisition Transaction with
respect to the Company; (ii) a tender or exchange offer is commenced by Motorola
for 100% of the outstanding voting securities of the Company not then owned by
Motorola; (iii) the Company reaches agreement with Motorola concerning an
Acquisition Transaction with respect to the Company; (iv) acquisitions by
Motorola of voting securities of the Company to the extent that any third party
has beneficial ownership of voting securities of the Company which exceeds the
beneficial ownership of voting securities of the Company then held by Motorola,
provided that following such acquisitions, the amount of voting securities of
the Company beneficially owned by Motorola shall not exceed the amount
beneficially owned by the third party; (v) acquisitions by Motorola pursuant to
the Tender Agreement and the purchases from Messrs. Staten and Mills; (vi) the
purchase by Motorola of that number of shares of voting securities, if any, of
the Company equal to the difference of the maximum number of voting securities
pursuant to the Offer which are offered to be purchased by Motorola minus the
number of shares of voting securities of the Company purchased under the Offer;
(vii) a material default by the Company under the License Agreement shall have
occurred and shall not have been cured as provided in the License Agreement;
(viii) any of the Company's officers shall, at any time while employed by the
Company or engaged by the Company in a consulting or similar capacity, fail to
beneficially own that percentage of voting securities of the Company which
exceeds 30% of the percentage of voting securities of the Company beneficially
owned by such individual as of March 18, 1998, it being understood that such 30%
requirement shall decrease by one percentage point for each percentage point
decrease, if any, in the percentage of outstanding voting securities of the
Company beneficially owned by Motorola; (ix) either Stephen R. Cohen or Robert
Kennedy shall cease to be employed by the Company in their current positions or
in positions of greater authority; (x) Stephen R. Cohen and Robert Kennedy shall
each cease to be employed by the Company due to their death or permanent
disability; (xi) the number of members of the Board of Directors of the Company
designated by Motorola is less than 20% of the aggregate number of members of
the Board of Directors of the Company then serving at any time during which
Motorola's beneficial ownership of voting securities of the Company exceeds 7%
of the then outstanding voting securities of the Company and is less than 26% of
the then outstanding voting securities of the Company; (xii) the number of
members of the Board of Directors of the Company designated by Motorola is less
than 30% of the aggregate number of members of the Board of Directors of the
Company then serving at any time during which Motorola's beneficial ownership of
voting securities of the Company exceeds 26% of the then outstanding voting
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securities of the Company; or (xiii) a plan of liquidation or dissolution is
adopted or a receiver or trustee in bankruptcy is appointed with respect to the
Company. The term Effective Date shall mean the date upon which Motorola shall
have consummated the Offer and shall own an amount equal to or in excess of
19.9% of the voting securities the Company.
THE INVESTOR'S RIGHTS AGREEMENT
DEMAND REGISTRATION. The Investor's Rights Agreement provides that,
subject to certain restrictions, at any time the Company receives a written
request from Motorola, the Company will use its best efforts to effect the
registration under the Securities Act, as soon as practicable, and in any event
within 75 days of the receipt of such request under the Securities Act of all
Registrable Securities (as defined in the Investor's Rights Agreement) which
Motorola requests to be registered, subject to the limitations of the Investor's
Rights Agreement and the Investors' Rights Agreement between the Company and
Creative Technology Ltd. dated June 20, 1996 (the "Creative Agreement").
Motorola may make up to five such requests for registration.
COMPANY REGISTRATION. If the Company proposes to register (including for
this purpose a registration effected by the Company for shareholders other than
Motorola or its assigns) any of its shares or other securities under the
Securities Act in connection with the public offering of such securities solely
for cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan or a registration in which the only shares
of Common Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), the Company shall, at such
time, promptly give Motorola written notice of such registration. Upon the
written request of Motorola given within 20 business days after mailing of such
notice by the Company in accordance with the Investor's Rights Agreement, the
Company shall, subject to the provisions of the Investor's Rights Agreement and
the Creative Agreement, cause to be registered under the Securities Act all of
the Registrable Securities that Motorola has requested to be registered. If the
underwriter determines in its sole discretion that the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder to the total amount of securities entitled to
be included therein by all selling shareholders or in such other proportions as
shall mutually be agreed to by such selling shareholders) but in no event shall
(i) the amount of securities of Motorola included in the offering be reduced
below 30% of the total amount of securities included in such offering, or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in the Investor's Rights
Agreement be excluded from such offering.
FORM S-3 REGISTRATION. If the Company receives from Motorola a written
request that the Company effect a registration on Form S-3 of the Securities Act
("Form S-3") the Company will as soon as practicable, effect such registration
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of
Motorola's Registrable Securities as are specified in such request, provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, (1) if Form S-3 is not available for
such offering by Motorola; (2) if the Company shall furnish to Motorola a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than 90 days; provided, however, that the Company shall not utilize this right
more than once in any 12-month period; (3) if the Company has already effected
five registrations in the aggregate for Motorola; (4) if Commission rules and
regulations require the Company to conduct a special audit (not including an
audit covering the end of the Company's fiscal year) in order to effect such
registration (unless resulting from a Company delay under clause (2) above); or
(5) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
The rights of Motorola to cause the Company to register Registrable
Securities may not be assigned by Motorola except to an affiliate of Motorola or
to a transferee or assigned of such securities who, after such assignment or
transfer, holds at least 15% of the shares of Registrable Securities held by
Motorola prior to such transfer or assignment, subject to certain provisions in
the Investor's Rights Agreement.
OTHER TRANSACTIONS WITH AFFILIATES
A. Jeffry Robinson is a partner of the 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.
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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.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this amendment to be signed on its behalf by the undersigned, thereunto
duly authorized.
NETSPEAK CORPORATION
Date: April 30, 1998 By:/S/ JOHN W. STATEN
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John W. Staten, Chief Financial Officer
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