<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
--------------------
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-25520
CENTERSPAN COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-1040330
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
7175 NW EVERGREEN PARKWAY #400
HILLSBORO, OREGON 97124-5839
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 503-615-3200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK
-------------------
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 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. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $159,080,380 as of February 29, 2000 based upon the last sales
price as reported by the Nasdaq National Market System.
The number of shares outstanding of the Registrant's Common Stock as of February
29, 2000 was 6,148,034 shares.
-----------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant will incorporate into Part III of Form 10-K by reference portions
of its Proxy Statement for its 2000 Annual Meeting of Shareholders.
================================================================================
<PAGE>
CENTERSPAN COMMUNICATIONS CORPORATION
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1. Business 2
Item 2. Properties 5
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 15
Item 8. Consolidated Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 32
PART III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial Owners and Management 32
Item 13. Certain Relationships and Related Transactions 32
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 33
Signatures 36
</TABLE>
1
<PAGE>
ITEM 1. BUSINESS
OVERVIEW
CenterSpan Communications Corporation (the "Company") was originally
incorporated in 1990 as ThrustMaster, Inc., an Oregon corporation. The Company
changed its name to CenterSpan Communications Corporation in October 1999.
The Company has historically been a developer and marketer of realistic, high
quality game controllers for the home personal computer ("PC") and video console
markets, which comprised the Company's hardware business. The Company sold this
portion of its business in July 1999 (see "Sale of Hardware Business
- -Discontinued Operations"). The Company is now pursuing an Internet e-commerce
transaction business model, with revenue expected to be generated from Internet
and e-commerce partners.
The Company's new Internet community, collaboration and communications business
develops and markets Internet software products based on three cutting-edge
technologies developed by the Intel Architecture Labs. These technologies
facilitate PC-to-PC text messaging and multi-point audio over the Internet,
enabling communication and collaborative information sharing. The Company's new
Internet community, collaboration and communications product is nearing
commercial release.
SALE OF HARDWARE BUSINESS - DISCONTINUED OPERATIONS
On July 26, 1999, the Company entered into an agreement for the sale of the
Company's hardware business assets and its related sales and return warranty
reserves to Guillemot Corporation, S.A. ("Guillemot") for $15 million in cash,
subject to certain adjustments. The Company's hardware business had historically
comprised the bulk of the Company's assets, liabilities, revenues and expenses.
From its founding in 1990 through 1997, the Company was a leader in designing
and marketing innovative PC game controller products. However, commencing in
1997, many larger competitors with greater economies of scale entered the game
controller market, creating an extremely competitive environment characterized
by declining prices and increased marketing costs. The Company's management
determined that the Company could not achieve the economies of scale necessary
to be profitable in the game controller market in the foreseeable future and
concluded that the Company should sell the hardware business and invest the
proceeds in the Company's Internet community, collaboration and communications
business.
INTERNET COMMUNICATIONS SOFTWARE BUSINESS - CONTINUING OPERATIONS
On May 31, 1998 the Company entered into a license agreement with Intel
Corporation that licensed to the Company certain software source code technology
related to voice communications over the Internet. The scope of the license was
limited primarily to the PC gaming and entertainment market where the bulk of
the Company's historical business activity was conducted. In December 1998, the
Company re-negotiated the license agreement and secured additional terms
allowing it to use the technology in additional market segments outside of PC
gaming and entertainment.
2
<PAGE>
In January 1999, the Company shipped its first Internet communications software
product into the distribution and retail channels. The product, called Talk n'
Play, incorporated the Intel technology and allowed up to four people in
separate locations to conduct a four-way voice conference over the Internet
while they played on-line games. In June 1999, the Company shipped its second
Internet communications product, iConference, into the distribution and retail
channels, targeting the small-office/home-office market. iConference provided
the same four-way Internet voice conferencing capability as Talk n' Play and
added the ability for up to four people to transfer files, share files or share
a white board while they were engaged in their voice conference. The Company is
no longer selling either of these products.
In August 1999, the Company entered into a second license agreement with Intel
Corporation that licensed to the Company additional software source code for
development of its next generation Internet community, collaboration and
communications products. The Company intends to target these new products at the
home PC market.
The Company's first next generation product was released as a beta phase product
in the first quarter of 2000. The new product, called Socket-TM-, is distributed
via free downloads from certain Internet sites as well as through free compact
disks distributed to select target markets. The Company is also pursuing a
strategy of partnering with software developers, Internet service providers and
hardware manufacturers to provide a distribution of Socket-TM-. Socket-TM-
incorporates Intel's technologies to allow for multi-point audio, presence
detection, comparing and sharing of data and applications with designated
on-line users on a "buddy list" and "launch and connect" capabilities with other
on-line participants from a user's buddy list. See "Product Development and
Technology" below.
The Company believes that Internet community, collaboration and communications
by the mass market is in an early stage of development but that increasing
demand for these services will develop with the convergence of real-time data,
voice and video multimedia interactivity over the Internet. Currently, most of
this technology is "server based." This requires a provider of these services to
buy additional computer equipment in order to constantly "scale-up" to meet the
increased demands of its subscribers or visitors. The technology the Company
licensed from Intel Corporation provides for "PC-to-PC" solutions. This
technology allows a provider to offer a desktop client software solution that
will allow its subscribers or visitors to engage in real-time multimedia
communications without being "tied" to the provider's server. The Company
believes that the future of Internet community, collaboration and communications
will be driven by open, standards-based, "PC-to-PC" technology and solutions.
PRODUCT DEVELOPMENT AND TECHNOLOGY
The Company is developing a unique, desktop-based "Internet Activity Hub" called
Socket"TM", targeted at small groups of mainstream Internet users, with the
power and functionality to also appeal to experienced early adopters. The hub is
built around a core technology, currently licensed from Intel Corporation, that
encompasses the following areas:
- - Buddy List - technology that enables work groups or friends to seamlessly
find and connect with one
another and form work and play communities on the Internet.
- - Instant Messaging and Group Text Chat - technology that permits real time
person-to-person and group text communication.
3
<PAGE>
- - Multi-Point Audio - PC-to-PC technology that enables multiple users to have
a full duplex voice conference over the Internet while simultaneously
engaging in other activities, e.g., group web surfing, collaborative
business applications, or multi-player online games.
- - Launch and Connect - technology that allows groups to launch multi-person
collaborative activities (e.g. online games and shared whiteboards) while
continuing to communicate through text or voice during the activity.
- - Compare and Share - technology that enables a group to share details of
their computer systems, software and other items to identify common and
uncommon applications and other items. Users are prompted to make purchases
of uncommon applications and other items from the Company's partners via
e-commerce, generating commission revenue.
PRODUCT USE SCENARIO
A product use scenarios for Socket-TM- is as follows: A group of friends who
have started a voice conference using the Company's software decide to play a
multi-player Internet game. The software allows the group to see who has the
game, with those who do not currently own the game being prompted to point and
click to be immediately linked to an affiliate partner to purchase the game.
Commissions from the affiliate partner provide an e-commerce source of revenue
for both the Company and its partner. The host launches the entire group into
the game with a point and click. The same scenario works for any compatible
multi-user Internet software.
RESEARCH AND ENGINEERING
The Company spent $782,000, $162,000 and $0 on research and engineering
activities related to its continuing operations during 1999, 1998 and 1997,
respectively. In addition, the Company incurred $2.5 million for the license of
certain technology from Intel during 1999, which was written off at the end of
1999. The Company expects to continue to make significant investments in
research and engineering in 2000.
SALES, DISTRIBUTION AND MARKETING
The Company is using an Internet e-commerce transaction business model, which
the Company believes will generate revenue from Internet and e-commerce partners
by facilitating purchases through individual and group communications. The
Company's Socket-TM- product is distributed via free downloads from certain
Internet sites as well as through free compact disks distributed to select
target markets. The Company is also pursuing a strategy of partnering with
software developers, Internet service providers and hardware manufacturers to
provide a distribution of Socket-TM-.
The Company intends to use strategic partners, word-of-mouth, or "viral
expansion," and a comprehensive marketing campaign to help in attracting users
of its software. The Company anticipates that viral expansion will become its
largest distribution channel.
The Company spent $159,000 on advertising related to its continuing operations
during 1999. No amounts were spent in 1998 or 1997 related to advertising for
the Company's Internet software business.
4
<PAGE>
COMPETITION
The market for Internet online services is highly competitive. The Company's
primary competitors are Internet service providers, such as America Online,
Inc., Microsoft Corporation and Yahoo!, all of which have resources and brand
recognition that are substantially greater than that of the Company. There are
no significant barriers to entry for offering Internet online services.
Consequently, numerous Web-based service companies have built significant
businesses in areas such as e-mail, electronic commerce and directories.
The Company believes the main competitive factors in the market for Internet
online services are ease of use, level of services provided and ability to reach
end-use customers.
INTELLECTUAL PROPERTY
Some of the intellectual property rights used in the development of the
Company's software products are licensed from Intel Corporation under a three
year, nonexclusive license, expiring in August 2002. The Company has applied for
registration of the names CenterSpan-TM- and Socket-TM-. The Company relies on
trademark and copyright law, trade secret protection and confidentiality
agreements with it employees, strategic partners and others to protect its
proprietary rights. Although the Company believes that its products, processes
and trademarks do not infringe on the rights of others, third parties may assert
infringement or other related claims against the Company in the future. Any
infringement claim or related litigation against the Company, or any challenge
to the validity of the Company's own intellectual property rights, and the
expense and effort of defending the same, could materially and adversely affect
the Company's business, financial conditions and results of operations.
EMPLOYEES
As of December 31, 1999, the Company had a total of 35 full-time employees. At
times, the Company supplements its workforce with temporary contract workers.
None of the Company's employees are represented by a labor union. The Company
has not experienced any work stoppages and considers its relations with its
employees to be good.
ITEM 2. PROPERTIES
The Company maintains its headquarters and warehouse and distribution facilities
in Hillsboro, Oregon, in approximately 60,000 square feet of leased space under
two leases expiring in September 2003. The Company has negotiated a sublease for
approximately 15,000 square feet and is currently attempting to sublease an
additional 23,000 square feet of the 60,000 square feet. The Company also leases
approximately 16,000 square feet of space in Surrey, England under a lease
expiring in September 2007. The Company is no longer utilizing this space and is
also negotiating a sublease of all of this space. The Company believes its
facilities are adequate for its immediately foreseeable needs and that suitable
additional or alternative space will be available on commercially reasonable
terms if needed.
5
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company has been, and expects to continue to be, subject
to legal proceedings and claims in the ordinary course of its business. Such
claims, even if lacking merit, could result in the expenditure of significant
financial and managerial resources. The Company is not currently a party to, nor
is it aware of, any legal proceeding or claims that it believes will have,
individually or in the aggregate, a material adverse effect on the Company or on
its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on December 15,
1999, at which the following actions were taken:
1. The shareholders elected five nominees for director to the Board of
Directors of the Company. The five directors elected, along with the voting
results and their term of service are as follows:
<TABLE>
<CAPTION>
Name Term No. of Shares Voting For No. of Shares Withheld Voting
- ---- ---- ------------------------ -----------------------------
<S> <C> <C> <C>
Gen. Merrill A. McPeak Expiring in 2002 2,892,027 900
C. Norman Winningstad Expiring in 2002 2,892,027 900
Frank G. Hausmann Expiring in 2002 2,892,027 900
David Billstrom Expiring in 2001 2,890,527 2,400
Jerome J. Meyer Expiring in 2001 2,891,027 1,900
</TABLE>
2. The shareholders approved the appointment of KPMG LLP as the independent
accountants of the Company for the year ending December 31, 1999 (2,892,618
shares were voted affirmatively, 309 shares were voted negatively and no
shares abstained from voting).
6
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market. Until
October 29, 1999, it traded under the symbol TMSR and thereafter under the
symbol CSCC. The high and low sales prices for the two years in the period ended
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1998 High Low
------------------------------------------- --------- ---------
<S> <C> <C>
Quarter 1 $ 14.00 $ 10.50
Quarter 2 12.88 7.13
Quarter 3 7.25 3.38
Quarter 4 16.00 2.75
<CAPTION>
1999 High Low
------------------------------------------- --------- ---------
<S> <C> <C>
Quarter 1 $ 16.75 $ 9.75
Quarter 2 25.50 16.25
Quarter 3 24.00 15.50
Quarter 4 32.38 13.56
</TABLE>
The approximate number of beneficial shareholders and shareholders of record at
February 29, 2000 were 2,700 and 64, respectively.
There were no cash dividends declared or paid in 1999 or 1998. The Company does
not anticipate declaring cash dividends in the foreseeable future. The Company's
line of credit facility restricts the Company's ability to pay dividends.
There were no sales of unregistered securities during 1999 that have not been
previously reported.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data relating to the Company
should be read in conjunction with the Company's consolidated financial
statements and the related notes thereto. On July 26, 1999, the Board of
Directors of the Company approved the sale of the Company's hardware business
assets. The Company has presented the hardware business as a discontinued
operation in the selected consolidated financial data presented below.
<TABLE>
<CAPTION>
IN THOUSANDS
(EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 1996 1995
- ---------------------------------------------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues $ 787 $ - $ - $ - $ -
Cost of goods sold 569 - - - -
---------- --------- --------- --------- ---------
Gross profit 218 - - - -
Operating expenses:
Research and engineering 782 162 - - -
Selling, general and administrative 2,474 935 495 440 397
Special charge 2,500 - - - -
---------- --------- --------- --------- ---------
Total operating expenses 5,756 1,097 495 440 397
---------- --------- --------- --------- ---------
Loss from operations (5,538) (1,097) (495) (440) (397)
Interest income 417 64 304 466 404
Loss from beneficial conversion feature (987) - - - -
---------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes (6,108) (1,033) (191) 26 7
Provision for income taxes (4,532) - - - -
---------- --------- --------- --------- ---------
Income (loss) from continuing operations (10,640) (1,033) (191) 26 7
Income (loss) from discontinued operations,
net of tax provision (benefit) of $0,
$(5,792), $1,615, $1,370 and $687 (5,207) (8,023) 3,388 2,233 1,354
Gain on disposal of discontinued operations
6 - - - -
---------- --------- --------- --------- ---------
Net income (loss) $ (15,841) $ (9,056) $ 3,197 $ 2,259 $ 1,361
========== ========= ========= ========= =========
Income (loss) per share from continuing
operations:
Basic $ (2.11) $ (0.24) $ (0.04) $ 0.01 $ 0.00
========== ========= ========= ========= =========
Diluted $ (2.11) $ (0.24) $ (0.04) $ 0.01 $ 0.00
========== ========= ========= ========= =========
Income (loss) per share from discontinued
operations:
Basic $ (1.03) $ (1.83) $ 0.79 $ 0.53 $ 0.37
========== ========= ========= ========= =========
Diluted $ (1.03) $ (1.83) $ 0.73 $ 0.50 $ 0.33
========== ========= ========= ========= =========
Net income (loss) per share:
Basic $ (3.14) $ (2.07) $ 0.75 $ 0.54 $ 0.37
========== ========= ========= ========= =========
Diluted $ (3.14) $ (2.07) $ 0.69 $ 0.51 $ 0.33
========== ========= ========= ========= =========
Shares used in per share calculations:
Basic 5,038 4,380 4,268 4,182 3,647
========== ========= ========= ========= =========
Diluted 5,038 4,380 4,660 4,468 4,060
========== ========= ========= ========= =========
CONSOLIDATED BALANCE SHEET DATA
Working capital $ 15,535 $ 10,685 $ 18,361 $ 15,253 $ 12,836
Total assets 19,357 25,954 26,092 20,896 14,910
Total liabilities 3,397 14,401 6,812 4,998 1,599
Shareholders' equity 15,960 11,553 19,280 15,898 13,311
</TABLE>
8
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This management's discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto, included elsewhere in this
Form 10-K.
FORWARD LOOKING INFORMATION
The discussion and analysis below as well as other items and attachments to this
Form 10-K contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Act provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information about themselves so long as they identify these statements as
forward-looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact that the
Company makes in this Report on Form 10-K are forward-looking. In particular,
statements regarding the adequacy of funds to meet the Company's current or
future cash needs; the development of the Company's software products; the
Internet community, collaboration and communications market; and the Company's
future results of operations or financial position are forward-looking
statements. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," and similar expressions identify
forward-looking statements. However, the absence of these words does not mean
the statement is not forward-looking. The Company cannot guarantee any of the
forward-looking statements, which are subject to risks, uncertainties and
assumptions that are difficult to predict. Actual results may differ materially
from those the Company forecasts in forward-looking statements due to a variety
of factors, including some of those set forth in the Company's quarterly report
on Form 10-Q for the quarterly period ended September 30, 1999 and those set
forth elsewhere within this discussion. The Company does not intend to update
any forward-looking statements due to new information, future events or
otherwise.
SALE OF THE HARDWARE BUSINESS - DISCONTINUED OPERATIONS
On July 26, 1999, the Company entered into an agreement to sell substantially
all of the assets of the hardware business including related sales and return
warranty reserves. This transaction closed on October 1, 1999 for $15.0 million
in cash, $2.25 million of which remains in an escrow account and is scheduled to
be released at various dates through May 31, 2000. The entire $2.25 million may
not be received by the Company in certain circumstances that relate to the
ability of the purchaser to renew a certain contract, collect accounts
receivable and sell through inventory that existed at the date of purchase. The
Company recorded a gain on the disposal of its hardware business of $6,000 in
the fourth quarter of 1999. The hardware business has historically comprised the
bulk of the Company's assets, liabilities, revenues and expenses. From its
founding in 1990 through 1997, the Company was a leader in designing and
marketing innovative PC game controller products. However, commencing in 1997,
many larger competitors with greater economies of scale entered the game
controller market creating an extremely competitive environment characterized by
declining prices and increased marketing costs. The Company's Board of Directors
determined that the Company could not achieve the economies of scale necessary
to be profitable in the game controller market in the foreseeable future, and
concluded that the Company should sell the hardware business and invest the
proceeds in the Company's new Internet community, collaboration and
communication software business.
9
<PAGE>
INTERNET COMMUNICATIONS SOFTWARE BUSINESS - CONTINUING OPERATIONS
On May 31, 1998 the Company entered into a license agreement with Intel
Corporation that licensed to the Company certain software source code technology
related to voice communications over the Internet. The scope of the license was
limited primarily to the PC gaming and entertainment market where the bulk of
the Company's historical business activity was conducted. In December 1998, the
Company re-negotiated the license agreement and secured additional rights
allowing it to use the technology in additional market segments outside of PC
gaming and entertainment.
In January 1999, the Company shipped its first Internet communications software
product into the distribution and retail channels. The product, called Talk n'
Play, incorporated the Intel technology and allowed up to four people in
separate locations to conduct a four-way voice conference over the Internet
while they played on-line games. The product also allowed the user to
participate in certain Internet communities. In June 1999, the Company shipped
its second Internet communications product, iConference, into the distribution
and retail channels, targeting the small-office/home-office market. iConference
provided the same four-way Internet voice conferencing capability as Talk n'Play
and added the ability for up to four people to transfer files, share files or
share a white board while they are engaged in their voice conference. The
Company is no longer selling these products.
In August 1999, the Company entered into a second license agreement with Intel
Corporation that licensed to the Company additional software source code that
the Company believes will enable it to accelerate the development of its next
generation Internet communications and collaboration products. Most of the
Company's revenue from its new Internet software business was generated in the
computer retail channel.
The Company believes that Internet communications and collaboration by the mass
market is in an early stage of development and that increasing demand for these
services will drive the convergence of real-time data, voice and video
multimedia interactivity over the Internet. Currently, most of this technology
is "server based." This requires a provider of these services to buy additional
computer equipment in order to constantly "scale-up" to meet the increased
demands of its subscribers or visitors. The audio technology the Company
licensed from Intel Corporation provides a "PC-to-PC" solution. This technology
allows a provider to offer a desktop client software solution that will allow
its subscribers or visitors to engage in real-time multimedia communications
without being "tied" to the provider's server. The Company believes that a
significant trend in the future of Internet community, collaboration and
communications will be driven by open, standards-based, "PC-to-PC" technology
and solutions.
10
<PAGE>
RESULTS OF CONTINUING OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO 1998
The continuing operations of the Company consist of its software business, which
began in mid-1998 and has generated revenues beginning in 1999. The results of
the Company's continuing operations for the year ended December 31, 1999 are
discussed below.
REVENUES
Revenues for 1999 were generated from the sale of two products, Talk n'Play and
iConference, and totaled $787,000. The Company discontinued the retail sale of
these products in the fourth quarter of 1999. In the first quarter of 2000, the
Company released a Beta version of its new product, Socket(TM). The Company
anticipates 2000 to be an investment year, in which the focus will be on the
distribution of Socket(TM) to end-users and does not expect to generate
significant revenue until 2001. The Company is pursing an Internet e-commerce
transaction business model, with revenue expected to be generated from Internet
and e-commerce partners.
GROSS PROFIT
Gross profit for 1999 was $218,000 (27.7% of revenues) and was generated from
the retail sale of Talk n'Play and iConference products and is net of the cost
of production and inventory adjustments.
RESEARCH AND ENGINEERING
Research and engineering expenses consist principally of salaries and related
personnel expenses, consultant fees and the cost of software used in product
development. Research and engineering expenses were $782,000 (99.4% of revenues)
in 1999. The Company made significant investments in research and engineering in
1999 and anticipates making significant investments in research and engineering
in 2000 as well.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses consist of salaries and related
expenses for personnel engaged in direct sales, partner development, consultant
fees, advertising, promotional materials, executive, legal, accounting and
administrative personnel, professional services and general corporate expenses.
Selling, general and administrative expenses increased to $2.5 million in 1999
from $935,000 in 1998 as a result of expanding the workforce and other
activities related to the Internet community, collaboration and communications
software business.
SPECIAL CHARGE
The $2.5 million non-cash special charge for purchased in-process technology in
1999 relates to the write-off of technology purchased from Intel Corporation in
exchange for two warrants exercisable for a total of 288,988 shares of the
Company's Common Stock. Given the shift in the Company's revenue model during
late 1999, under which it provides its software to users at no cost, the Company
determined that there were no future cash flows to support maintaining the value
of this technology on its balance sheet and therefore expensed the entire
amount.
INTEREST EXPENSE
Interest expense was allocated to the hardware business.
11
<PAGE>
INTEREST INCOME
Interest income increased to $417,000 in 1999 from $64,000 in 1998 as a result
of increased cash balances, which resulted primarily from private placements of
debt and equity securities during 1999 and the sale of the hardware business in
October 1999 for $15.0 million.
LOSS FROM BENEFICIAL CONVERSION FEATURE
On June 9, 1999, the Company issued and sold to two investors $6.0 million
aggregate principal amount of the Company's zero coupon Convertible Debentures
due June 9, 2002 for $6.0 million in cash. The Convertible Debentures were
recorded as debt. The beneficial conversion feature was recorded as additional
paid in capital and as a discount against long-term debt. The beneficial
conversion feature of $987,000 was recognized over 90 days using the effective
interest method. The debt was converted to equity prior to December 31, 1999.
PROVISION FOR INCOME TAXES
The Company's tax provision for 1999 includes the establishment of a full
valuation allowance of $8.4 million on the Company's deferred tax asset due to
the change in the Company's business. A valuation allowance has been recorded
for the full amount of deferred tax assets, as a result of uncertainty regarding
the realization of the asset balance.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO 1997
GENERAL
The Company did not derive any revenue from its continuing operations in 1998 or
1997. The hardware business has been accounted for as discontinued operations,
but certain expenses have been allocated to continued operations, based on the
number of employees remaining with the software business, their related employee
costs and overhead for facilities and other related costs and corporate overhead
expenses that are expected to represent continuing expenses.
RESEARCH AND ENGINEERING
Research and engineering expenses were $162,000 for 1998, an increase of 100%
compared to 1997. This increase was a result of software engineers and related
costs allocated to the software business in 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased to $935,000 in 1998 from
$495,000 in 1997. The increase in selling, general and administrative expenses
in 1998 was a result of more employee costs and expenses allocated to continuing
operations during 1998 since there were more employees focused on the software
business during this period compared to 1997.
INTEREST INCOME
Interest income for 1998 was $64,000. This compares with interest income of
$304,000 in 1997. Interest income represents earnings from the investment of the
cash balances of the Company, which were significantly higher during 1997
compared to 1998.
12
<PAGE>
RESULTS OF DISCONTINUED OPERATIONS
1999 COMPARED TO 1998 AND 1997
The sale of the hardware business has been accounted for as discontinued
operations and, accordingly, its operations are segregated in the statements of
operations included elsewhere in this Form 10-K. Revenues from discontinued
operations were $13.5 million, $25.9 million and $45.5 million for the years
ended December 31, 1999, 1998, and 1997, respectively. Certain expenses have
been allocated to continuing operations, based on the number of employees
remaining with the software business, their related employee costs and overhead
for facilities and other related costs and corporate overhead expenses that were
expected to represent continuing expenses.
Loss from discontinued operations was $5.2 million in 1999 compared to loss from
discontinued operations of $8.0 million in 1998 and income from discontinued
operations of $3.4 million in 1997. The income/loss from discontinued operations
represents the net activity of the discontinued hardware business, including
revenues and associated expenses and the resulting tax provision (benefit) for
the years ended December 31, 1999, 1998 and 1997, respectively. Income (loss)
from discontinued operations includes the entire tax provision (benefit) of the
Company for the years ended December 31, 1998 and 1997 as management determined
that income taxes (benefits) were primarily associated with the hardware
business because the software business had limited activity in 1998 and 1997.
The significant loss incurred in 1998 in comparison to 1997 is primarily due to
the influx of several large competitors late in 1997 with greater economies of
scale, creating an extremely competitive environment resulting in declining
sales prices and increased marketing costs. Leading up to and during part of
1997, the Company was one of the leaders in the game controller market and was
generating positive net income.
The Company realized a gain on the disposal of its discontinued operations of
$6,000 in 1999. The gain was the difference between the estimated proceeds of
the sale and the Company's basis in the net assets sold and related expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities to date with a combination of cash flow
from operations, borrowed funds, proceeds from the sale of its hardware business
and proceeds from the sale of equity securities. At December 31, 1999, the
Company had $15.5 million of working capital and its current ratio was 5.6:1.0
In late 1998, the Company entered into a demand discretionary $16.0 million line
of credit. The Company did not utilize the line as expected. On July 30, 1999,
the Company paid off the balance of the line of credit and the Company and the
lender terminated the line of credit.
On January 28, 1999, the Company issued to three investors an aggregate of
250,000 shares of the Company's Common Stock (subject to adjustment as described
below) and warrants to acquire 70,754 shares of Common Stock for an aggregate of
$4.0 million. The exercise price applicable to 50% of the shares issuable upon
exercise of the warrants is $20.00 per share; the exercise price for the
remaining warrant shares is $22.40 per share. The Common Stock warrants are
exercisable until January 28, 2004. The Company also agreed to issue to the
investors "adjustment" shares of its Common Stock for no additional
consideration depending upon the market price of the Company's Common Stock
during
13
<PAGE>
specified periods following the investment. The adjustment periods lapsed in
July 1999 and the Company was not required to issue any additional shares.
On June 9, 1999, the Company issued and sold to two investors $6.0 million
aggregate principal amount of the Company's zero coupon Convertible Debentures
due June 9, 2002 (the "Debentures"). The Debentures were converted into 492,011
shares of the Company's Common Stock in December 1999.
On August 31, 1999, the Company sold 273,853 shares of the Company's Common
Stock for $18.258 per share to a single investor, receiving $5.0 million in
proceeds. In connection with the sale, the Company issued a warrant for 30,000
shares of the Company's Common Stock to the investor's financial consultant as a
finder's fee. The exercise price for this warrant is $18.258 per share and is
exercisable at any time before August 30, 2004.
In August 1999, the Company issued a warrant to acquire 200,000 shares of its
Common Stock for $18.09 per share to Intel Corporation in exchange for certain
technology that was subsequently written off (see "Purchased In-Process
Technology" above). The warrant is exercisable until August 9, 2004.
Net cash provided by operating activities was $5.7 million in 1999 primarily as
a result of the sale of the hardware business assets and $8.8 million of
non-cash operating expenses, offset by a net loss of $15.8 million and a
decrease in payables and accrued liabilities of $5.2 million. This compares to
net cash used in operating activities of $5.0 million in 1998.
Accounts payable decreased $6.1 million to $1.1 million at December 31, 1999
from $7.2 million at December 31, 1998 primarily as a result of the sale of the
hardware business and the related decrease in trade purchases.
The Company believes that available funds generated by the sale of the hardware
business on October 1, 1999 in the amount of $15.0 million and the receipt of
$16.3 net proceeds in connection with the issuance of additional equity during
1999 will be adequate to meet the Company's cash needs during the next twelve
months. The Company may require additional capital beyond the amounts currently
forecasted by the Company. Any such required additional capital may not be
available on reasonable terms, if at all, at such time or times as required by
the Company.
YEAR 2000
The Company has not incurred any material problems with its information systems,
products, suppliers, service providers or customers related to the year 2000.
The Company spent approximately $47,000 on year 2000 issues and anticipates
spending an additional $8,700 on a new year 2000 compliant voice mail system.
14
<PAGE>
NEW ACCOUNTING PRONOUNCEMENT
In June 1999, the FASB issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
137"). SFAS 137 is an amendment to Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS
137 establishes accounting and reporting standards for all derivative
instruments. SFAS 137 is effective for fiscal years beginning after June 15,
2000. The Company does not currently have any derivative instruments and,
accordingly, does not expect the adoption of SFAS 137 to have an impact on its
financial position or results of operations.
RISK FACTORS
THE COMPANY MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS AT ANTICIPATED RATES
The Company intends to use strategic partners, word-of-mouth or "viral
expansion" and a comprehensive marketing campaign to help in attracting users of
its software. Once attracted, the Company must retain its customers. In order to
do this, the Company must provide an excellent first experience, continuously
improve its product features, create high switching costs and build a foundation
for viral expansion. The Company's revenue model is driven off of volume
activity with strategic partners. Without a sufficient customer base, the
Company may not be able to achieve the revenue levels it needs to attain
profitable operations.
THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY EFFECT VIRAL EXPANSION
The Company anticipates that word-of-mouth, or viral expansion, will become its
largest distribution channel. The Company anticipates that it will be able to
attract a significant number of customers through viral expansion. If this does
not happen as the Company anticipates, it may need to determine other acceptable
methods of distribution for its products.
THE COMPANY MAY NOT BE ABLE TO ATTRACT AND RETAIN STRATEGIC PARTNERS
The Company's business model is based on an Internet e-commerce transaction
business model, with revenue expected to be generated from Internet and
e-commerce partners. If the Company does not attract and retain Internet and
e-commerce partners, it may not be able to generate sufficient levels of revenue
to support the Company's operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of the Company's liquid investments as of December 31, 1999
were at fixed interest rates and had original maturities of 90 days or less. As
a result, the Company believes that the market risk arising from its holdings of
financial instruments is minimal.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA
Independent Auditors' Report
The Board of Directors
CenterSpan Communications Corporation
We have audited the accompanying consolidated balance sheet of CenterSpan
Communications Corporation and subsidiaries (formerly ThrustMaster, Inc.) as of
December 31, 1999, and the related consolidated statements of operations,
changes in shareholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The accompanying consolidated
financial statements of CenterSpan Communications Corporation for the years
ended December 31, 1998 and 1997 were audited by other auditors whose report
thereon dated January 25, 1999 expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CenterSpan
Communications Corporation and subsidiaries as of December 31, 1999, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
KPMG LLP
Portland, Oregon
February 19, 2000
16
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
of Centerspan Communications Corporation:
In our opinion, the consolidated balance sheet as of December 31, 1998 and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the two years in the period ended
December 31, 1998 present fairly, in all material respects, the financial
position, results of operations and cash flows of Centerspan Communications
Corporation and subsidiaries at December 31, 1998 and for each of the two
years in the period ended December 31, 1998, in conformity with accounting
principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above. We have not audited the
consolidated financial statements of Centerspan Communications Corporation
and subsidiaries for any period subsequent to December 31, 1998.
PricewaterhouseCoopers LLP
January 25, 1999
17
<PAGE>
CENTERSPAN COMMUNICATIONS CORPORATION
(FORMERLY THRUSTMASTER, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,467 $ 460
Restricted cash 2,282 -
Accounts receivable, net 4 -
Prepaid expenses and other 179 134
Net assets from discontinued operations - 17,737
Income taxes receivable - 2,078
Deferred tax assets - 4,677
------------------ -----------------
Total current assets 18,932 25,086
Plant and equipment, net 400 843
Other assets 25 25
------------------ -----------------
Total assets $ 19,357 $ 25,954
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Operating line of credit $ - $ 5,821
Accounts payable 1,055 7,202
Accrued liabilities 2,342 1,378
------------------ -----------------
Total current liabilities 3,397 14,401
------------------ -----------------
Commitments
Shareholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized;
none issued or outstanding - -
Common stock, no par value, 25,000,000 shars authorized;
5,950,120 and 4,597,333 shares issued and outstanding 31,736 14,846
Common stock warrants 3,530 -
Accumulated deficit (19,306) (3,262)
Accumulated other comprehensive loss - (31)
------------------ -----------------
Total shareholders' equity 15,960 11,553
------------------ -----------------
Total liabilities and shareholders' equity $ 19,357 $ 25,954
================== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE>
CENTERSPAN COMMUNICATIONS CORPORATION
(FORMERLY THRUSTMASTER, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenue $ 787 $ - $ -
Cost of goods sold 569 - -
----------------- ----------------- -----------------
Gross profit 218 - -
Operating expenses:
Research and engineering 782 162 -
Selling, general and administrative 2,474 935 495
Special charge 2,500 - -
----------------- ----------------- -----------------
5,756 1,097 495
----------------- ----------------- -----------------
Loss from operations (5,538) (1,097) (495)
Interest income 417 64 304
Expense from beneficial conversion feature (987) - -
----------------- ----------------- -----------------
(570) 64 304
----------------- ----------------- -----------------
Loss from continuing operations before taxes (6,108) (1,033) (191)
Provision for income taxes 4,532 - -
----------------- ----------------- -----------------
Loss from continuing operations (10,640) (1,033) (191)
Loss from discontinued operations:
Income (loss) from discontinued operations, net
of tax provision (benefit) of $0, ($5,792) and $1,615 (5,207) (8,023) 3,388
Gain from disposal of discontinued operations 6 - -
----------------- ----------------- -----------------
Net income (loss) $ (15,841) $ (9,056) $ 3,197
================= ================= =================
Basic and diluted loss per share from continuing
operations $ (2.11) $ (0.24) $ (0.04)
================= ================= =================
Income (loss) per share from discontinued operations:
Basic $ (1.03) $ (1.83) $ 0.79
================= ================= =================
Diluted $ (1.03) $ (1.83) $ 0.73
================= ================= =================
Net income (loss) per share:
Basic $ (3.14) $ (2.07) $ 0.75
================= ================= =================
Diluted $ (3.14) $ (2.07) $ 0.69
================= ================= =================
Shares used for per share calculations:
Basic 5,038 4,380 4,268
================= ================= =================
Diluted 5,038 4,380 4,660
================= ================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
CENTERSPAN COMMUNICATIONS CORPORATION
(FORMERLY THRUSTMASTER, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (10,640) $ (1,033) $ (191)
Gain (loss) from discontinued operations (5,207) (8,023) 3,388
Gain from sale of discontinued operations 6 - -
---------------- ---------------- ----------------
Net income (loss) (15,841) (9,056) 3,197
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Depreciation 607 1,124 471
Deferred income taxes 4,677 (4,332) (127)
Beneficial conversion feature on debt 987 - -
Warrants issued for technology 2,500 - -
Changes in operating assets and liabilities
Restricted cash (2,282) - -
Accounts receivable (4) - -
Prepaid expenses and other assets 363 (94) (181)
Income taxes receivable 2,078 (2,078) -
Accounts payable and accrued liabilities (5,152) 2,942 792
Net assets from discontinued operations 17,737 6,474 (10,494)
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities 5,670 (5,020) (6,342)
Cash flows from investing activities:
Payments for purchase of plant and equipment (172) (359) (793)
Cash flows from financing activities:
Proceeds from (payments on) operating line of credit, net (5,821) 4,711 1,110
Payments on long-term debt - - (10)
Proceeds from issuance of convertible debt 6,000 - -
Proceeds from issuance of common stock and warrants 10,330 679 64
---------------- ---------------- ----------------
Net cash provided by financing activities 10,509 5,390 1,164
---------------- ---------------- ----------------
Increase (decrease) in cash and cash equivalents 16,007 11 (5,971)
Cash and cash equivalents:
Beginning of period 460 449 6,420
---------------- ---------------- ----------------
End of period $ 16,467 $ 460 $ 449
================ ================ ================
Cash paid during the year for:
Income taxes $ - $ 1,025 $ 1,531
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
CENTERSPAN COMMUNICATIONS CORPORATION
(FORMERLY THRUSTMASTER, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Retained
Common Stock Common Earnings
------------------------------------ Stock (Accumulated
Shares Amount Warrants Deficit)
--------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 4,240 $ 13,301 $ - $ 2,597
Proceeds from issuance of common stock 54 64 - -
Tax benefits from stock options exercised - 121 - -
Net income - - - 3,197
--------------- ------------ ----------- -----------
Balance at December 31, 1997 4,294 13,486 - 5,794
Proceeds from issuance of common stock 303 679 - -
Tax benefits from stock options exercised - 681 - -
Comprehensive loss:
Cumulative translation adjustment - - - -
Net loss - - - (9,056)
--------------- ------------ ----------- -----------
Balance at December 31, 1998 4,597 14,846 - (3,262)
Proceeds from issuance of common stock 848 9,270 1,030 -
Tax benefits from stock options exercised - 30 - -
Beneficial conversion feature on debt - 987 - -
Conversion of convertible debt 492 6,000 - -
Warrants provided to common shareholders 13 203 - (203)
Warrants issued in exchange for goods and services - - 2,500 -
Non-cash compensation expense - 400 - -
Comprehensive income:
Cumulative translation adjustment - - - -
Net loss - - - (15,841)
--------------- ------------ ----------- -----------
Balance at December 31, 1999 5,950 $ 31,736 $ 3,530 $ (19,306)
=============== ============ =========== ===========
<CAPTION>
Accumulated
Other Total
Comprehensive Shareholders'
Income (Loss) Equity
--------------------------------
<S> <C> <C>
Balance at December 31, 1996 $ - $ 15,898
Proceeds from issuance of common stock - 64
Tax benefits from stock options exercised - 121
Net income - 3,197
--------------- ------------
Balance at December 31, 1997 - 19,280
Proceeds from issuance of common stock - 679
Tax benefits from stock options exercised - 681
Comprehensive loss:
Cumulative translation adjustment (31) (31)
Net loss - (9,056)
--------------- ------------
Balance at December 31, 1998 (31) 11,553
Proceeds from issuance of common stock - 10,300
Tax benefits from stock options exercised - 30
Beneficial conversion feature on debt - 987
Conversion of convertible debt - 6,000
Warrants provided to common shareholders - -
Warrants issued in exchange for goods and services - 2,500
Non-cash compensation expense - 400
Comprehensive income:
Cumulative translation adjustment 31 31
Net loss - (15,841)
--------------- ------------
Balance at December 31, 1999 $ - $ 15,960
=============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
21
<PAGE>
CENTERSPAN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1. THE COMPANY
CenterSpan Communications Corporation was originally incorporated in 1990 as
ThrustMaster, Inc., an Oregon Corporation. The Company changed its name to
CenterSpan Communications Corporation in October 1999.
The Company has historically been a developer and marketer of realistic, high
quality game controllers for the home personal computer ("PC") and video console
markets, which comprised the Company's hardware business. The Company sold this
portion of its business in July 1999. See Note 3. The Company is now pursuing an
Internet e-commerce transaction business model, with revenue expected to be
generated from Internet and e-commerce partners.
The Company's new Internet community, collaboration and communications business
develops and markets Internet software products based on three cutting-edge
technologies developed by the Intel Architecture Labs. These technologies
facilitate PC-to-PC text messaging and multi-point audio over the Internet,
enabling communication and collaborative information sharing. The Company's new
Internet community, collaboration and communications product is nearing
commercial release.
The consolidated financial statements include the accounts of CenterSpan
Communications Corporation (the "Company"), an Oregon corporation, and its
wholly-owned subsidiaries, ThrustMaster (Europe) Limited and ThrustMaster
(Deutschland) GmbH.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS. Cash equivalents consist of highly liquid debt
instruments purchased with an original maturity of three months or less.
RESTRICTED CASH. Restricted cash includes $2,250 held in escrow related to the
sale of the Company's hardware business. The $2,250 is scheduled to be released
at various dates through May 31, 2000. The entire $2,250 may not be received by
the Company in certain circumstances that relate to the ability of the purchaser
to renew a certain contract, collect accounts receivable and sell through
inventory that existed at the date of purchase.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial instruments consist
of accounts receivable and accounts payable. For the periods presented, the fair
value of the Company's financial instruments is equal to the carrying value of
the financial instruments.
PLANT AND EQUIPMENT. Plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives (three to seven
years). Replacements and improvements which extend the useful life are
capitalized. Maintenance and repairs and routine replacements are expensed as
incurred. Upon disposal, costs and related accumulated depreciation of the
assets are removed from the accounts and resulting gains and losses are
reflected in operations.
22
<PAGE>
INCOME TAXES. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial reporting and
tax bases of assets and liabilities and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period of change.
REVENUE RECOGNITION. Revenue for software sold in the retail channel was
recognized at the time of product shipment. Beginning in 2000, revenue generated
by the Company's new product, Socket(TM), will be recognized at the time an
end-user transaction is completed with one of the Company's Internet affiliate
partners.
RESEARCH AND ENGINEERING EXPENSE. Research and engineering costs, including
software development costs, are charged to operations as incurred and totaled
$782, $162 and $0 for continuing operations in 1999, 1998 and 1997,
respectively.
SOFTWARE DEVELOPMENT COSTS. Development costs related to software products are
expensed until technological feasibility of the product 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 not been significant, and, accordingly, no costs
have been capitalized.
TECHNOLOGY. The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards, and changing customer needs.
The Company believes that its future success will depend, in part, upon its
ability to enhance its current products and develop new products on a timely and
cost-effective basis, and to respond to changing customer needs and
technological developments. An inability of the Company to generate demand for
its products, whether as a result of competition, technological change or other
factors, could have a material adverse effect on the Company's financial
condition and results of operations.
ADVERTISING. Advertising costs, which include cooperative advertising and
marketing development funds, are expensed as incurred and totaled $159 for
continuing operations in 1999 and zero in 1998 and 1997.
STOCK BASED COMPENSATION. The Company accounts for stock-based employee
compensation arrangements in accordance with provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees." ("APB No. 25")
and complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation." Under APB No. 25, compensation expense is based on
the difference, if any, on the date of grant between the exercise price of the
instrument granted and the fair value of the underlying stock. Non-employee
stock-based compensation is determined in accordance with SFAS No. 123,
utilizing the Black Scholes valuation methodology. Stock-based compensation is
amortized over the vesting period of the related securities.
23
<PAGE>
EARNINGS PER SHARE DATA. Basic earnings per common share is computed using the
weighted average number of shares of common stock outstanding for the period.
Diluted earnings per common share is computed using the weighted average number
of shares of common stock and dilutive common equivalent shares outstanding
during the year. Common equivalent shares from stock options and other common
stock equivalents are excluded from the computation when their effect is
antidilutive.
COMPREHENSIVE INCOME (LOSS). The Company has adopted the accounting treatment
prescribed by Financial Accounting Standards Board SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for reporting
comprehensive income (loss) and its components in financial statements.
Comprehensive income (loss), as defined, includes all changes in equity during a
period from non-owner sources. Comprehensive income (loss) was $(15,810),
$(9,087) and 3,197 for the years ended December 31, 1999, 1998 and 1997,
respectively.
USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the 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.
NOTE 3. DISCONTINUED OPERATIONS: DISPOSAL OF HARDWARE BUSINESS ASSETS
On July 26, 1999, the Company entered into an agreement to sell substantially
all of the assets of its hardware business including related sales and return
warranty reserves. This transaction closed on October 1, 1999 for $15,000 in
cash, $2,250 million of which remains in an escrow account and is scheduled to
be released at various dates through May 31, 2000. The entire $2,250 may not be
received by the Company in certain circumstances that relate to the ability of
the purchaser to renew a certain contract, collect accounts receivable and sell
through inventory that existed at the date of purchase. The Company recorded a
gain on the disposal of its hardware business of $6 in the fourth quarter of
1999. Revenues applicable to the discontinued operations were $13,452, $25,905
and $45,494 for the years ended December 31, 1999, 1998 and 1997, respectively.
The components of net assets from discontinued operations included in the
consolidated balance sheet at December 31, 1998 were as follows:
<TABLE>
<S> <C>
Accounts receivable, net $ 10,581
Inventories, net 6,786
Prepaid expenses and other 118
Tooling, net 1,507
Sales return and warranty reserves (1,255)
--------------
$ 17,737
==============
</TABLE>
24
<PAGE>
NOTE 4. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
The financial instrument which potentially subjects the Company to concentration
of credit risk is accounts receivable. The Company's accounts receivable are
primarily from a small number of computer wholesale distributors and software
specialty stores located in the United States, Canada, and western Europe.
Management believes that any risk of loss is significantly reduced by its
ongoing credit evaluations of its distributors' financial condition
Two distributors accounted for 89% and 10%, respectively, of the Company's total
revenue from continuing operations in 1999. These distributors accounted for 75%
and 0%, respectively, of the accounts receivable balance at December 31, 1999.
The Company did not have any revenue from continuing operations in 1998 or 1997.
NOTE 5. PLANT AND EQUIPMENT
Plant and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Computers and other equipment $ 634 $ 844
Tooling 3 -
Furniture and fixtures 364 393
------------ ------------
1,001 1,237
Less: Accumulated depreciation (601) (394)
------------ ------------
$ 400 $ 843
============ ============
</TABLE>
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Accrued bonuses $ 300 $ 35
Accrued sublease costs 297 -
Other accrued expenses related to discontinued operations 1,553 -
Other liabilities 192 1,343
------------- -------------
$ 2,342 $ 1,378
============= =============
</TABLE>
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company leases facilities and equipment under non-cancelable operating
leases. Certain of the facility leases contain escalation clauses. The following
is a schedule by years, through expiration of the facilities leases, of future
minimum lease payments required under these leases as of December 31, 1999:
<TABLE>
<S> <C>
For the year ending December 31,
2000 $ 243
2001 248
2002 255
2003 180
---------------
$ 926
===============
</TABLE>
25
<PAGE>
Under the agreements for the lease of its office, production, and distribution
facilities, the Company is obligated to the lessors for its share of certain
expenses related to the use, operation, maintenance and insurance of the
property. These expenses, payable monthly in addition to the base rent, are not
included in the amounts shown above. Rental expense totaled $222, $222 and $133
for the years ended December 31, 1999, 1998, and 1997, respectively.
From time to time, the Company is involved in various claims arising from the
operation of the business. Management does not believe that the items
outstanding at December 31, 1999 will have a material adverse impact on the
financial position of the Company.
NOTE 8. CHANGES IN EQUITY
On January 28, 1999, the Company issued to three investors an aggregate of 250
shares of the Company's Common Stock (subject to adjustment as described below)
and warrants to acquire 71 shares of Common Stock for an aggregate of $4,000.
The exercise price applicable to 50% of the shares issuable upon exercise of the
warrants is $20.00 per share; the exercise price for the remaining warrant
shares is $22.40 per share. The Common Stock warrants are exercisable until
January 28, 2004. The Company also agreed to issue to the investors "adjustment"
shares of its Common Stock for no additional consideration depending upon the
market price of the Company's Common Stock during specified periods following
the investment. The adjustment periods lapsed in July 1999 and the Company was
not required to issue any additional shares.
On June 9, 1999, the Company issued and sold to two investors $6,000 aggregate
principal amount of the Company's zero coupon Convertible Debentures due June 9,
2002 (the "Debentures"). The Debentures were converted into 492 shares of the
Company's Common Stock in December 1999.
On August 31, 1999, the Company sold 274 shares of the Company's Common Stock
for $18.258 per share to a single investor, receiving $5,000 in proceeds. In
connection with the sale, the Company issued a warrant for 30 shares of the
Company's Common Stock to the investor's financial consultant as a finder's fee.
The exercise price for this warrant is $18.258 per share and is exercisable at
any time before August 30, 2004.
In August 1999, the Company issued a warrant to acquire 200 shares of its Common
Stock for $18.09 per share to Intel Corp. in exchange for certain technology
that was subsequently written off as a special charge. The warrant is
exercisable until August 9,2004.
NOTE 9. STOCK OPTION PLANS AND WARRANTS
OPTIONS
The Company has adopted a stock option plan for employees and directors (the
"1998 Stock Option Plan"). The Company has reserved 1,000 shares for issuance
under the 1998 Stock Option Plan. Subject to shareholder approval at the
Company's 2000 Annual Meeting, the number of shares reserved for issuance will
increase by 500 to a total of 1,500. The plan provides for incentive stock
options and nonqualified options to be granted. The Company previously made
grants under the 1994 Stock Option Plan, the 1994 Directors' Stock Option Plan,
and a nonqualified plan adopted in 1990 under which 1,200 shares had been
reserved. In May 1998, any ungranted options and any future forfeitures under
the 1994 and 1990
26
<PAGE>
option plans were transferred to the 1998 Stock Option Plan. At December 31,
1999, the Company had 1,492 shares reserved for issuance under the 1998 Stock
Option Plan and all previous plans combined. The Company has also issued options
outside of the 1998 Stock Option Plan for which it had 110 shares reserved for
issuance at December 31, 1999.
The stock option plans generally require the price of options to be at the
estimated fair market value of the stock at the date of grant. Options have a
maximum duration of ten years (five years under certain circumstances) and may
be exercised in varying amounts over the vesting periods. During 1998, the Board
of Directors approved a stock option repricing for all executives and employees
of the Company. Included in the options granted and options cancelled in 1998
are 278 options related to this repricing. The repricing was effective as of
October 1, 1998.
The following table summarizes all stock option transactions:
<TABLE>
<CAPTION>
Weighted
Average
Shares Shares Exercise
Available Subject to Price
for Grant Options Per Share
------------- ------------ --------------
<S> <C> <C> <C>
Balances, December 31, 1996 426 734 $ 2.69
Options granted (243) 243 9.82
Options cancelled 40 (40) 7.61
Options exercised - (41) 1.55
------------- ------------ --------------
Balances, December 31, 1997 223 896 4.54
Additional shares reserved 1,060 - -
Options granted (811) 811 6.25
Options cancelled 358 (358) 9.37
Options exercised - (303) 2.24
------------- ------------ --------------
Balances, December 31, 1998 830 1,046 4.11
Additional shares reserved 50 - -
Options granted (752) 752 14.31
Options cancelled 293 (293) 7.87
Options exercised - (324) 4.35
------------- ------------ --------------
Balances, December 31, 1999 421 1,181 $10.01
============= ============ ==============
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------ ----------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Number of Average
Exercise Number Contractual Exercise Shares Exercise
Prices Outstanding Life (years) Price Exercisable Price
- ------------------ --------------- ------------- ------------ --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 0.27 - 5.34 457 7.3 $3.03 455 $ 3.03
7.40 - 13.69 311 9.6 12.86 21 8.84
15.00 - 17.50 413 9.8 15.58 80 15.47
- ------------------ --------------- ------------- ------------ --------------- ---------------
$0.27 - 17.50 1,181 8.8 $10.01 556 $ 5.04
================== =============== ============= ============ =============== ===============
</TABLE>
At December 31, 1998 and 1997, 308 and 494 options, respectively, were
exercisable at weighted average exercise prices of $2.73 per share and $2.25 per
share, respectively.
27
<PAGE>
WARRANTS
All warrants are exercisable for shares of the Company's Common Stock. The
following table summarizes warrant transactions:
<TABLE>
<CAPTION>
Warrant Weighted
Shares Shares Average
Shares Warrant Acquired Outstanding Exercise
Date Subject to Shares Upon at December Expiration Price
Issued Warrant Cancelled Exercise 31, 1999 Date Per Share
- --------------- --------------- ------------ ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
03/03/95 117 14 13 90 02/24/00 7.57
05/04/98 89 - - 89 12/04/03 4.81
08/09/99 200 - - 200 08/09/04 18.09
08/30/99 30 - - 30 08/30/04 18.26
01/28/99 35 - - 35 01/28/04 20.00
01/28/99 35 - - 35 01/28/04 22.40
--------------- -------------
479 $14.11
=============== =============
</TABLE>
At December 31, 1999, 1998 and 1997 warrants covering 479, 206 and 117 shares of
the Company's Common Stock, respectively, were exercisable at weighted average
exercise prices of $14.11, $6.38 and $7.57 per share, respectively.
SFAS 123
The Company applies APB opinion No. 25 and related interpretations in accounting
for its stock based compensation plans. However, in accordance with SFAS 123,
pro forma disclosures as if the Company adopted the fair value method
requirements under SFAS 123 for all awards subsequent to January 1, 1995, are
presented below.
The weighted average per share fair value of options and warrants granted during
1999, 1998 and 1997 was $6.37 $0.66 and $2.04, respectively. The fair value of
each option and warrant granted during the years ended 1999, 1998 and 1997 was
estimated on the date of grant using the Black-Scholes option pricing model with
the following assumptions:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1999 1998 1997
---------------- ---------------- -----------------
<S> <C> <C> <C>
Risk-free interest rate 4.6%-5.9% 4.1%-5.6% 5.9%-6.8%
Expected dividend yield 0% 0% 0%
Expected lives (years) 5 3.3 3.3
Volatility 76%-78% 33.9% 26.7%
</TABLE>
28
<PAGE>
Had compensation cost for the Company's stock option plans and warrants been
determined consistent with SFAS 123, the Company's net income (loss) would have
been adjusted to the following pro forma amounts:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Loss from continuing operations:
As reported $ (10,640) $ (1,033) $ (191)
Pro forma (11,277) (1,033) (191)
Basic and diluted loss per share from continuing operations:
As reported (2.11) (0.24) (0.04)
Pro forma (2.24) (0.24) (0.04)
Income (loss) from discontinued operations:
As reported (5,201) (8,023) 3,388
Pro forma (5,340) (8,288) 3,178
Basic income (loss) per share from discontinued operations:
As reported (1.03) (1.83) 0.79
Pro forma (1.06) (1.89) 0.74
Diluted income (loss) per share from discontinued operations:
As reported (1.03) (1.83) 0.73
Pro forma (1.06) (1.89) 0.68
Net income (loss):
As reported (15,841) (9,056) 3,197
Pro forma (16,617) (9,321) 2,987
Basic net income (loss) per share:
As reported (3.14) (2.07) 0.75
Pro forma (3.30) (2.13) 0.70
Diluted net income (loss) per share:
As reported (3.14) (2.07) 0.69
Pro forma (3.30) (2.13) 0.64
</TABLE>
The effect of applying SFAS 123 in this pro forma disclosure is not indicative
of future amounts.
NOTE 10. INCOME TAXES
The provision for (benefit from) income taxes from continuing operations in 1999
and discontinued operation in 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal $ (145) $ (2,224) $ 1,535
State - - 207
------------- ------------- -------------
- (2,224) 1,742
Deferred:
Federal 4,166 (2,591) (105)
State 511 (977) (22)
------------- ------------- -------------
4,677 (3,568) (127)
------------- ------------- -------------
$ 4,532 $ (5,792) $ 1,615
============= ============= =============
</TABLE>
29
<PAGE>
The provision for (benefit from) income taxes differs from the amount of income
taxes determined by applying the statutory federal income tax rate to income
from continuing operations for 1999 and discontinued operations for 1998 and
1997 due to the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Statutory federal income tax rate (34.0) % (34.0) % 34.0 %
State taxes, net of federal income taxes (4.4) (4.4) 2.2
Change in valuation allowance 108.0
Research and development tax credit and other - (3.5) (3.9)
----------- ----------- ---------
Effective tax rate 69.6 % (41.9) % 32.3 %
=========== =========== =========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following components:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
------------- -----------
<S> <C> <C>
Deferred tax assets:
Expenses and allowances not currently deductible $ 627 $ 1,158
Net operating loss carryforwards 7,155 2,938
Credit carryforwards 581 581
------------- -----------
Net deferred income taxes 8,363 4,677
Valuation allowance (8,363) -
------------- -----------
$ - $ 4,677
============= ===========
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1997 was $0.
The net change in total valuation allowance for the years ended December 31,
1999, 1998 and 1997 was an increase of $8,363, $0 and $0, respectively.
The Company has federal, state and foreign net operating loss carryforwards of
$12,100, $20,015 and $6,550, respectively, that expire from 2013-2019. The
Company has accumulated unused federal and state research and experimentation
credits of approximately $461 that expire from 2003-2019. The Company also has
Alternative Minimum Tax (AMT) credits in the amount of $163, which may be
carried forward indefinitely.
NOTE 11. EARNINGS PER SHARE
Shares used for basic and diluted earnings per share ("EPS") are the same for
1999 and 1998 since the Company was in a loss position. The difference between
the 4,268 shares used for the basic EPS calculation in 1997 and the 4,660 shares
used for the diluted EPS calculation in 1997 is a result of 392 dilutive common
stock equivalents related to stock options and warrants.
Potentially dilutive securities that were not included in the diluted net loss
per share calculations because they would be antidilutive were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1999 1998 1997
------------ -------------- ------------
<S> <C> <C> <C>
Stock options 1,181 1,046 40
Stock warrants 479 117 -
------------ -------------- ------------
Total 1,660 1,163 40
============ ============== ============
</TABLE>
30
<PAGE>
NOTE 12. 401 (k) PLAN
The Company has a 401(k) Plan (the "Plan") covering substantially all employees
meeting minimum service requirements. The Plan allows the Company to make
discretionary matching contributions. The Company provided discretionary
contributions of $30, $46, and $45 for the years ended December 31, 1999, 1998,
and 1997, respectively.
NOTE 13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected unaudited quarterly financial data for each of the eight quarters in
the two-year period ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
- ------------------------------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998
- ----
Revenue $ - $ - $ - $ -
Gross profit - - - -
Loss from continuing operations (203) (203) (244) (383)
Loss from discontinued operations (1,038) (2,626) (3,038) (1,321)
Net loss (1,241) (2,829) (3,282) (1,704)
Loss per share from continuing operations
Basic (0.05) (0.05) (0.06) (0.09)
Diluted (0.05) (0.05) (0.06) (0.09)
Loss per share from discontinued
operations
Basic (0.24) (0.60) (0.69) (0.29)
Diluted (0.24) (0.60) (0.69) (0.29)
1999
- ----
Revenue $ 346 $ 375 $ 85 $ (19)
Gross profit 246 235 71 (334)
Loss from continuing operations (202) (5,113) (1,724) (3,601)
Gain (loss) from discontinued operations
(196) (5,011) - 6
Net loss (398) (10,124) (1,724) (3,595)
Loss per share from continuing operations
Basic (0.04) (1.05) (0.34) (0.66)
Diluted (0.04) (1.05) (0.34) (0.66)
Gain (loss) per share from discontinued
operations
Basic (0.04) (1.03) - -
Diluted (0.04) (1.03) - -
</TABLE>
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
PricewaterhouseCoopers LLP ("PWC") was the Company's independent auditors for
its fiscal year ended December 31, 1998. On November 17, 1999, with the approval
of the Audit Committee of the Board of Directors, the Company dismissed PWC as
its independent auditors. PWC's reports on the Company's financial statements
for the last two fiscal years did not contain an adverse opinion or a disclaimer
of opinion and the reports were not qualified or modified as to uncertainty,
audit scope or accounting principles. During the Company's last two fiscal years
and during the current year through November 17, 1999, there were not any
disagreements with PWC on any matter of auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PWC, would have caused it
to make a reference to the subject matter of the disagreement in connection with
its reports.
PWC filed a letter dated November 17, 1999 indicating its concurrence with these
statements.
The Company engaged KPMG LLP ("KPMG") as its new independent accountants as of
November 17, 1999. During the two most recent fiscal years and through November
17, 1999, the Company had not consulted with KPMG on items which: 1) were or
should have been subject to SAS 50; or 2) concerned the subject matter of a
disagreement or reportable event with the former auditor (as described in
Regulation S-K Item 304 (a) (2)).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item will be included under the captions ELECTION
OF DIRECTORS, EXECUTIVE OFFICERS and SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE, respectively, in the Company's Proxy Statement for its
2000 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included under the caption
EXECUTIVE COMPENSATION in the Company's Proxy Statement for its 2000 Annual
Meeting of Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included under the caption
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's
Proxy Statement for its 2000 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The Consolidated Financial Statements, together with the report thereon of KPMG
LLP, are included on the pages indicated below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 16
Report of Independent Public Accountants 17
Consolidated Balance Sheets as of December 31, 1999 and 1998 18
Consolidated Statements of Operations for the years ended December 31, 1999,1998
and 1997 19
Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998
and 1997 20
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1999, 1998 and 1997 21
Notes to Consolidated Financial Statements 22
</TABLE>
There are no schedules required to be filed herewith.
REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the quarter ended December
31, 1999:
- Form 8-K dated October 1, 1999 and filed October 18, 1999 under
Item 2, Acquisition or Disposition of Assets;
- Form 8-K dated November 17, 1999 and filed November 23, 1999 under
Item 4, Change in Registrant's Certifying Accountant; and
- Form 8-K dated December 17, 1999 and filed December 21, 1999 under
Item 5, Other Events.
33
<PAGE>
EXHIBITS
The following exhibits are filed herewith and this list is intended to
constitute the exhibit index:
<TABLE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
2 Asset Purchase Agreement dated July 26, 1999 among
Guillemont Corporation, S.A., as the Purchaser, and
Thrustmaster, Inc., as the Seller (Incorporated by
reference to Exhibit A to the Company's definitive proxy
statement for the September 27, 1999 Special Meeting of
Shareholders)
3.1(1) Articles of Incorporation, as amended
3.2(2) Amended and Restated Bylaws
4.1(1) Description of Capital Stock contained in the Articles of
Incorporation, as amended (see Exhibit 3.1)
4.2(2) Description of Rights of Security Holders contained in the
Amended and Restated Bylaws (see Exhibit 3.2)
4.3(1) Form of Certificate for Shares of Common Stock
4.4(1) Form of Representatives' Warrant Agreement among the
Company, Cruttenden Roth and Black & Company, Inc.
4.5(4) Securities Purchase Agreement dated as of January 28, 1999
among the Company and the Purchasers party thereto
4.6(4) Form of Callable Warrant
4.7(4) Registration Rights Agreement dated as of January 28, 1999
among the Company and the Purchasers party thereto
4.8(6) Common Stock Purchase Agreement, dated as of August 6,
1999, between the Company and Peter R. Kellogg
4.9(6) Form of Warrant issued to Lucas Capital Management
10.1 1998 Stock Option Plan (Incorporated by reference to
Exhibit A to the Company's definitive proxy statement for
the 1998 Annual Meeting of Shareholders)
10.2(1) 1994 Incentive Compensation Plan, dated December 21, 1993
10.3(3) Directors' Nonqualified Stock Option Plan, dated July 19,
1994, as amended
10.4(3) 1994 Stock Option Plan, dated July 19, 1994, as amended
10.5 1990 Stock Option Plan (incorporated by reference to
Exhibit 4.3 to the Registration Statement on Form S-8 filed
on June 5, 1995 (File No. 33-93082))
34
<PAGE>
<CAPTION>
Exhibit No.
-----------
<S> <C>
10.6(2) Leases, dated March 13, 1996, between Pacific Realty
Associates, L.P. and the Company, as amended
10.7(5) Lease dated January 7, 1998 between Stargas Nominees
Limited and the Company
10.8 Form of Change-in-Control Agreement for all officers of
CenterSpan Communications Corporation
10.9 Software Development and License Agreement dated August 9,
1999 between Intel Corporation and the Company
(confidential treatment requested for portions of this
exhibit).
16(7) Letter re Change in Certifying Accountant.
21(1) Subsidiaries of the Registrant
23.1 Consent of KPMG LLP
23.2 Consent of PricewaterhouseCoopers LLP
27 Financial data schedule
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 filed on January 5, 1995, as amended on February 7, 1995 and
February 24, 1995 (File No. 33-88252-LA)
(2) Incorporated by reference to the Company's Report on Form 10-K for the
year ended December 31, 1996.
(3) Incorporated by reference to the Company's Registration Statement on
Form SB-2 filed on January 5, 1995, as amended on February 7, 1995 and
February 24, 1995 (File No. 33-88252-LA); the amendment to the document
is incorporated by reference to the Company's Report on Form 10-K for
the year ended December 31, 1997.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
filed on February 16, 1999.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(6) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
(7) Incorporated by reference to the Company's Form 8-K dated November 17,
1999 and filed November 23, 1999 under Item 4, Change in Registrant's
Certifying Accountant.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 27, 2000 CENTERSPAN COMMUNICATIONS CORPORATION
By /s/ Frank G. Hausmann, Jr.
--------------------------------
Frank G. Hausmann, Jr.
President, Chief Executive Officer and
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 27, 2000:
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Frank G. Hausmann, Jr. President, Chief Executive Officer and
- -------------------------- Chairman of the Board (Principal Executive Officer)
Frank G. Hausmann, Jr.
/s/ Mark B. Conan Vice President of Finance, Administration and CFO
- ----------------------- (Principal Financial and Accounting Officer)
Mark B. Conan
/s/ David Billstrom Director
- -----------------------
David Billstrom
/s/ Merrill A. McPeak Director
- -----------------------
Merrill A. McPeak
/s/ Lee E. Mikles Director
- -----------------------
Lee E. Mikles
/s/ Jerome J. Meyer Director
- -----------------------
Jerome J. Meyer
/s/ G. Gerald Pratt Director
- -----------------------
G. Gerald Pratt
/s/ Frederick M. Stevens Director
- -----------------------
Frederick M. Stevens
</TABLE>
36
<PAGE>
EXHIBIT 10.8
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of _______________
is between CENTERSPAN COMMUNICATIONS CORPORATION, an Oregon corporation (the
"Company"), and ________________________________ (the "Executive").
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its stockholders to ensure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
Appendix A to this Agreement, which is incorporated herein by this reference) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive arising from the personal uncertainties and risks
created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, to encourage the
Executive's willingness to serve a successor in an equivalent capacity, and to
provide the Executive with reasonable compensation and benefits arrangements in
the event that a Change of Control results in the Executive's loss of equivalent
employment.
In order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
1. EMPLOYMENT
1.1 CERTAIN DEFINITIONS
(a) "EFFECTIVE DATE" shall mean the first date during the
Change of Control Period (as defined in Section 1.1(b)) on which a Change of
Control occurs.
(b) "CHANGE OF CONTROL PERIOD" shall mean the period
commencing on the date of this Agreement and ending on the second anniversary of
such date; provided, however, that commencing on the date one year after the
date of this Agreement, and on each annual anniversary of such date (such date
and each annual anniversary thereof shall be hereinafter referred to as the
"Renewal Date"), the Change of Control Period shall be automatically extended so
as to terminate two years from such Renewal Date unless the Company gives prior
notice to the Executive that the Renewal Date shall not occur and the Change of
Control Period shall not be extended.
1.2 EMPLOYMENT PERIOD
The Company hereby agrees to continue the Executive in its employ or in
the employ of its affiliated companies, and the Executive hereby agrees to
remain in the employ of the Company or its affiliated companies, in accordance
with the terms of this Agreement, for a period commencing on the Effective Date
and ending on the second anniversary of such date (the "Employment Period").
1.3 POSITION AND DUTIES
During the Employment Period, the Executive's position, authority,
duties and responsibilities shall be at least reasonably commensurate in all
material respects with the most
<PAGE>
significant of those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date.
1.4 LOCATION
During the Employment Period, the Executive's services shall be
performed at the Company's headquarters on the Effective Date or any office
which is subsequently designated as the headquarters of the Company and 40 miles
or less from such location.
1.5 EMPLOYMENT AT WILL
The Executive and the Company acknowledge that, except as may otherwise
be expressly provided under any other written employment agreement between the
Executive and the Company, the employment of the Executive by the Company or its
affiliated companies is "at will" and may be terminated by either the Executive
or the Company or its affiliated companies at any time. Moreover, if prior to
the Effective Date the Executive's employment with the Company or its affiliated
companies terminates, then the Executive shall have no further rights under this
Agreement.
2. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive will devote all of
his productive time, ability, attention and effort to the business and affairs
of the Company and the discharge of the responsibilities assigned to him
hereunder, and will use his best efforts to perform faithfully and efficiently
such responsibilities. It shall not be a violation of this Agreement for the
Executive to (a) serve on corporate, civic or charitable boards or committees,
(b) deliver lectures, fulfill speaking engagements or teach at educational
institutions, and (c) manage personal investments, so long as such activities do
not significantly interfere with the performance of the Executive's
responsibilities in accordance with this Agreement. It is expressly understood
and agreed that to the extent any such activities have been conducted by the
Executive prior to the Employment Period, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
during the Employment Period shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the Company.
3. COMPENSATION
During the Employment Period, the Company agrees to pay or cause to be
paid to the Executive, and the Executive agrees to accept in exchange for the
services rendered hereunder by him, the following compensation:
3.1 SALARY
The Executive shall receive an annual base salary (the "Annual Base
Salary"), at least equal to the annual salary established by the Board or the
Compensation Committee of the Board (the "Compensation Committee") for the
fiscal year in which the Effective Date occurs. The Annual Base Salary shall be
paid in substantially equal installments and at the same intervals as the
salaries of other officers of the Company are paid.
-2-
<PAGE>
4. BENEFITS
4.1 BENEFIT PLANS; VACATION
During the Employment Period, the Executive shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be provided to other
executives of the Company and its affiliated companies from time to time during
the Employment Period by action of the Board (or any person or committee
appointed by the Board to determine fringe benefit programs and other
emoluments), including, without limitation, paid vacations; any incentive,
savings and retirement plan, practice, policy or program; and all welfare
benefit plans, practices, policies and programs (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs).
4.2 EXPENSES
During the Employment Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable employment expenses incurred by
him in accordance with the policies, practices and procedures of the Company and
its affiliated companies in effect for the executives of the Company and its
affiliated companies during the Employment Period.
5. TERMINATION
Employment of the Executive during the Employment Period may be
terminated as follows but, in any case, the nondisclosure and noncompetition
provisions set forth in Section 8 hereof shall survive the termination of this
Agreement and the termination of the Executive's employment with the Company:
5.1 BY THE COMPANY OR THE EXECUTIVE
Upon giving Notice of Termination (as defined below), the Company may
terminate the employment of the Executive with or without Cause (as defined
below), and the Executive may terminate his employment for Good Reason (as
defined below) or for any reason, at any time during the Employment Period.
5.2 AUTOMATIC TERMINATION
This Agreement and the Executive's employment during the Employment
Period shall terminate automatically upon the death or Total Disability of the
Executive. The term "Total Disability" as used herein shall mean the Executive's
inability (with or without such accommodation as may be required by law and
which places no undue burden on the Company), as determined by a physician
selected by the Company and acceptable to the Executive, to perform the duties
set forth in Section 1.3 hereof for a period or periods aggregating 120 calendar
days in any 12-month period as a result of physical or mental illness, loss of
legal capacity or any other cause beyond the Executive's control, unless the
Executive is granted a leave of absence by the Board. The Executive and the
Company hereby acknowledge that the Executive's presence and ability to perform
the duties specified in Section 1.3 hereof is of the essence of this Agreement.
-3-
<PAGE>
5.3 NOTICE OF TERMINATION
Any termination by the Company or by the Executive during the
Employment Period shall be communicated by Notice of Termination to the other
party given in accordance with Section 10 hereof. The term "Notice of
Termination" shall mean a written notice which (a) indicates the specific
termination provision in this Agreement relied upon and (b) to the extent
applicable, sets forth in reasonable detail the facts and circumstances claimed
to provide a basis for termination of the Executive's employment under the
provision so indicated. The failure by the Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's rights
hereunder.
5.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means (a) if the
Executive's employment is terminated by reason of death, at the end of the
calendar month in which the Executive's death occurs, (b) if the Executive's
employment is terminated by reason of Total Disability, immediately upon a
determination by the Company of the Executive's Total Disability, and (c) in all
other cases, five days after the date of mailing of the Notice of Termination.
The Executive's employment and performance of services will continue during such
five-day period; provided, however, that the Company may, upon notice to the
Executive and without reducing the Executive's compensation during such period,
excuse the Executive from any or all of his duties during such period.
6. TERMINATION PAYMENTS
In the event of termination of the Executive's employment during the
Employment Period, all compensation and benefits set forth in this Agreement
shall terminate except as specifically provided in this Section 6.
6.1 TERMINATION BY THE COMPANY FOR OTHER THAN CAUSE OR BY THE EXECUTIVE
FOR GOOD REASON
If the Company terminates the Executive's employment other than for
Cause or the Executive terminates his employment for Good Reason prior to the
end of the Employment Period, the Executive shall be entitled to:
(a) receive payment of the following accrued obligations
(the "Accrued Obligations"):
(i) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid;
(b) for eighteen months after the Date of Termination, the
Company shall continue its group health insurance benefits and other group
insurance programs (such as life, disability, etc.) to the Executive and/or the
Executive's family at least equal to those which would have been provided to
them in accordance with the Company plans that would have been available to
Executive if the Executive's employment had not been terminated; PROVIDED,
HOWEVER, that if the Executive becomes reemployed with another employer and is
eligible to receive health or other
-4-
<PAGE>
group insurance benefits under another employer-provided plan, the health and
other group insurance benefits described herein shall be secondary to those
provided under such other plan during such applicable period of eligibility
(such continuation of such benefits for the period herein set forth shall be
hereinafter referred to as the "Welfare Benefit Continuation");
(c) an amount as severance pay equal to 100% of the Annual
Base Salary for the fiscal year in which the Date of Termination occurs; and
(d) Executive shall be entitled to reasonable, pre-approved
Company-paid outplacement assistance, including job counseling and referral
services, for a period of six (6) months following the date of termination of
employment at an aggregate cost of not more than $6,000.
For purposes of the continuation health coverage required under Section
4980B of the Internal Revenue Code ("COBRA"), the date of the "qualifying event"
giving rise to Executive's COBRA election period (and that of his "qualifying
beneficiaries") shall be the last date on which the Executive receives Welfare
Benefit continuation under this Plan.
6.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If the Executive's employment shall be terminated by the Company for
Cause or by the Executive for other than Good Reason during the Employment
Period, this Agreement shall terminate without further obligation to the
Executive other than the obligation to pay to the Executive his Annual Base
Salary through the Date of Termination.
6.3 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If the Executive's employment is terminated by reason of the
Executive's death or Total Disability during the Employment Period, this
Agreement shall terminate automatically without further obligations to the
Executive or his legal representatives under this Agreement, other than for
payment of Accrued Obligations (which shall be paid to the Executive's estate or
beneficiary, as applicable in the case of the Executive's death), and the timely
payment or provision of the Welfare Benefit Continuation.
6.4 PAYMENT SCHEDULE AND LIMITATION
All payments under this Section 6 shall be made to the Executive at the
same intervals as such payments were made to him immediately prior to
termination.
If either the Company or the Executive receives confirmation from the
Company's certified public accounting firm, or such other accounting firm
retained as independent certified public accountants for the Company, that any
payment by the Company under this Section 6 would be considered to be an "excess
parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor statute then in effect, then the
aggregate payments by the Company pursuant to this Section 6 shall be reduced to
an amount which is $1.00 less than the smallest sum which would be deemed to be
such an "excess parachute payment" and, if permitted by applicable law, such
reduction shall be made to the last payment due hereunder; PROVIDED, FURTHER,
that, if permitted by applicable law, no such adjustment shall be made in any
year in which the Executive authorizes a reduction in the payment otherwise due
the Executive hereunder by an amount equal to any loss to be incurred by the
Company because such payments would not be
-5-
<PAGE>
deductible by the Company as a business expense for income tax purposes for the
reason that such payments constitute an "excess parachute payment" in that year.
6.5 CAUSE
For purposes of this Agreement, "Cause" means cause given by the
Executive to the Company and shall mean the occurrence of one or more of the
following events:
(a) Any act of dishonesty by Executive intended to result
in substantial gain or personal enrichment of the Executive;
(b) Executive personally engaging in knowing and
intentional illegal conduct which is injurious to the reputation of the Company
or its affiliates;
(c) Executive's continued failure to substantially
perform the duties and obligations of his employment which are not remedied
within thirty (30) days after notice thereof from the Board of Directors or
Chief Executive Officer of the Company to Executive;
(d) Executive being convicted of a felony, or committing
an act of dishonesty or fraud against, or the misappropriation of property
belonging to, the Company or its affiliates;
(e) Executive's engagement in repeated substance abuse
which impairs his ability to perform the duties and obligations of Executive's
employment or impairs the reputation of the Company;
(f) Executive personally engaging in any act of moral
turpitude that impairs the reputation of the Company;
(g) Executive knowingly and intentionally breaching in
any material respect the terms of this Agreement (or any confidentiality
agreement of invention or proprietary information agreement with the Company);
(h) Executive's commencement of employment with another
employer while he is an employee of the Company; or
(i) Any material breach by Executive of any material
provision of this Agreement which continues uncured for thirty (30) days
following notice thereof.
6.6 GOOD REASON
For purposes of this Agreement, "Good Reason" means the occurrence of
any of the following events or conditions and the failure of the Company to cure
such event or condition within 30 days after receipt of written notice by the
Executive:
(a) a change in the Executive's status, title, position
or responsibilities (including reporting responsibilities) that, in the
Executive's reasonable judgment, represents a substantial reduction in the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities that,
in the Executive's reasonable judgment, are materially inconsistent with such
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect the Executive to any of such
-6-
<PAGE>
positions (other than as a member of the board of directors), except in
connection with the termination of the Executive's employment for Cause, for
Disability or as a result of his or her death, or by the Executive other than
for Good Reason;
(b) a reduction in the Executive's annual base salary;
(c) the Company's requiring the Executive (without the
Executive's consent) to be based at any place outside a 35-mile radius of his or
her place of employment prior to a Change of Control, except for reasonably
required travel on the Company's business that is not materially greater than
such travel requirements prior to the Change of Control;
(d) the Company's failure to (i) continue in effect any
material compensation or benefit plan (or the substantial equivalent thereof) in
which the Executive was participating at the time of a Change of Control,
including, but not limited to, the Plan, or (ii) provide the Executive with
compensation and benefits substantially equivalent (in terms of benefit levels
and/or reward opportunities) to those provided for under each material employee
benefit plan, program and practice as in effect immediately prior to the Change
of Control;
(e) any material breach by the Company of its obligations
to the Executive under this Agreement; or
(f) any purported termination of the Executive's
employment or services for Cause by the Company that does not comply with the
terms of this Agreement.
6.7 NO DUTY TO MITIGATE
The Executive shall not be required to mitigate the amount of any
payment contemplated by this Agreement, nor shall any such payment be reduced by
any earnings that the Executive may receive from any other source.
7. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the
Executive represents and warrants to the Company as follows:
7.1 HEALTH
The Executive is in good health and knows of no physical or mental
disability which, with or without any accommodation which may be required by law
and which places no undue burden on the Company, would prevent him from
fulfilling his obligations hereunder. The Executive agrees, if the Company
requests, to submit to periodic medical examinations by a physician or
physicians designated by, paid for and arranged by the Company. The Executive
agrees that the examination's medical report shall be provided to the Company.
7.2 NO VIOLATION OF OTHER AGREEMENTS
The Executive represents that neither the execution nor the performance
of this Agreement by the Executive will violate or conflict in any way with any
other agreement by which the Executive may be bound.
-7-
<PAGE>
8. NONDISCLOSURE; NONCOMPETITION; RETURN OF MATERIALS
The Company and the Executive hereby reaffirm the Employee Invention
and Nondisclosure Agreement previously executed by the Executive (attached as
Exhibit A to this Agreement), and expressly incorporated herein as part of this
Agreement. Consistent with the Employee Invention and Nondisclosure Agreement,
Executive agrees that at no time during the Employment Period or within one year
thereafter will Executive become involved in any activity or with any business
entity anywhere in the world which directly or indirectly competes with any
product or service of the Company or its affiliates.
All documents, records, notebooks, notes, memoranda, drawings or other
documents made or compiled by the Executive at any time, or in his possession,
including any and all copies thereof, shall be the property of the Company and
shall be held by the Executive in trust and solely for the benefit of the
Company, and shall be delivered to the Company by the Executive upon termination
of employment or at any other time upon request by the Company.
The Executive understands that the Company will be relying on this
Agreement in continuing the Executive's employment, paying him compensation,
granting him any promotions or raises, or entrusting him with any information
which helps the Company compete with others.
9. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than clause (b), (c) or (d) of Section 6.6 hereof,
before such action is taken, the party asserting the breach of this Agreement
shall give the other party at least ten days' prior written notice of the
existence and the nature of such breach before taking further action hereunder
and shall give the party purportedly in breach of this Agreement the opportunity
to correct such breach during the ten-day period.
10. FORM OF NOTICE
Every notice required by the terms of this Agreement shall be given in
writing by serving the same upon the party to whom it was addressed personally
or by registered or certified mail, return receipt requested, at the address set
forth below or at such other address as may hereafter be designated by notice
given in compliance with the terms hereof:
If to the Executive: _____________________________________
_____________________________________
_____________________________________
If to the Company: CenterSpan Communications Corporation
7175 N.W. Evergreen Parkway, Suite 400
Hillsboro, Oregon 97124
or such other address as shall be provided in accordance with the terms hereof.
Except as set forth in Section 5.4 hereof, if notice is mailed, such notice
shall be effective upon mailing.
-8-
<PAGE>
11. ASSIGNMENT
This Agreement is personal to the Executive and shall not be assignable
by the Executive. The Company may assign its rights hereunder to (a) any
corporation resulting from any merger, consolidation or other reorganization to
which the Company is a party or (b) any corporation, partnership, association or
other person to which the Company may transfer all or substantially all of the
assets and business of the Company existing at such time. All the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors and
permitted assigns.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean CenterSpan Communications Corporation and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
13. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Executive, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Executive.
14. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the State of Oregon, without regard to
any rules governing conflicts of laws.
15. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
-9-
<PAGE>
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
16. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between the Company and the Executive with respect to the subject
matter hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Executive with respect
to such subject matter are hereby superseded and nullified in their entireties,
with the exception of the Employee Invention and Nondisclosure Agreement
referenced in Section 8.
17. WITHHOLDING
The Company may withhold from any amounts payable under this Agreement
such federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
18. COUNTERPARTS
This Agreement may be executed in counterparts, each of which
counterpart shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement on the date set forth above.
EXECUTIVE
_________________________________________
CENTERSPAN COMMUNICATIONS
CORPORATION
By _____________________________________
Its__________________________________
-10-
<PAGE>
APPENDIX A TO
CHANGE OF CONTROL AGREEMENT BETWEEN
CENTERSPAN COMMUNICATIONS CORPORATION AND
--------------------------
For purposes of this Agreement, a "Change of Control" shall mean:
(a) A "Board Change" which, for purposes of this Agreement, shall have
occurred if a majority (excluding vacant seats) of the seats on the Company's
Board are occupied by individuals who were neither (i) nominated by a majority
of the Incumbent Directors nor (ii) appointed by directors so nominated. An
"Incumbent Director" is a member of the Board who has been either (i) nominated
by a majority of the directors of the Company then in office or (ii) appointed
by directors so nominated, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person (as hereinafter defined) other than the
Board; or
(b) The acquisition by any Person (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of (i) 20% or more of
either (A) the then outstanding shares of Common Stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"), in the case
of either (A) or (B) of this clause (i), which acquisition is not approved in
advance by a majority of the Incumbent Directors, or (ii) 33% or more of either
(A) the Outstanding Company Common Stock or (B) the Outstanding Company Voting
Securities, in the case of either (A) or (B) of this clause (ii), which
acquisition is approved in advance by a majority of the Incumbent Directors;
PROVIDED, HOWEVER, that the following acquisitions shall not constitute a Change
of Control: (x) any acquisition by the Company, (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (z) any acquisition by any
corporation pursuant to a reorganization, merger or consolidation, if, following
such reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (c) of this Appendix A are satisfied;
or
(c) Approval by the stockholders of the Company of a reorganization,
merger or consolidation, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 60% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportion as
their ownership
<PAGE>
immediately prior to such reorganization, merger or consolidation of the
Outstanding Company Common Stock and the Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
reorganization, merger or consolidation and any Person beneficially owning,
immediately prior to such reorganization, merger or consolidation, directly or
indirectly, 33% or more of the Outstanding Company Common Stock or the
Outstanding Voting Securities, as the case may be) beneficially owns, directly
or indirectly, 33% or more of, respectively, the then outstanding shares of
common stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors, and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such reorganization, merger or
consolidation were the Incumbent Directors at the time of the execution of the
initial agreement providing for such reorganization, merger or consolidation; or
(d) Approval by the stockholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all the assets of the Company, other than to a
corporation with respect to which immediately following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 33% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 33%
or more of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board of directors
of such corporation were approved by a majority of the Incumbent Directors at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
-2-
<PAGE>
EXHIBIT 10.9
SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT
THIS SOFTWARE DEVELOPMENT AND LICENSE AGREEMENT ("Agreement"), dated effective
May 28, 1998 ("Effective Date"), is by and between INTEL CORPORATION, a Delaware
corporation with an office at 2111 NE 25th Avenue, Hillsboro, Oregon ("Intel")
and THRUSTMASTER, INC. an Oregon corporation with an office at 7175 NW Evergreen
Parkway, #400, Hillsboro, Oregon ("Thrustmaster").
RECITALS
A. Intel is a manufacturer of microprocessors, software and systems. Intel is
developing certain technologies (as further defined in Section 1.6 the
"Intel Software") that will enable audio communication for multiple parties
connected via an Internet server to engage in multi-player audio-enabled PC
games and other audio-enabled group activities.
B. Thrustmaster is a manufacturer of software communications solutions for
personal computers.
C. Intel desires to license the Intel Software to Thrustmaster in order to
develop the market segment for audio-enabled online PC Gaming, and
Thrustmaster desires to license the Intel Software from Intel in order to
extend the capabilities of Thrustmaster's product line.
D. The parties now wish to set forth the terms and conditions under which,
INTER ALIA, (i) Intel will license the Intel Software to Thrustmaster (ii)
Thrustmaster will develop and license to Intel certain Thrustmaster
Software that will be developed by Thrustmaster for use in conjunction with
the Intel Software, and (iii) Intel will receive warrants to purchase
shares of Thrustmaster common stock in form attached hereto as Exhibit E.
NOW THEREFORE, based on the Recitals and the terms and conditions herein, and
for other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
AGREEMENT
SECTION 1. DEFINITIONS
In addition to the terms defined elsewhere in this Agreement, the following
terms have the following meanings:
1.1 "Derivative Work" means a work based upon one or more preexisting
works, such as a translation, abridgment, condensation, modification,
or any other form in which a work may be recast, transformed, or
adapted.
1.2 "Embed" means to incorporate the Intel Software into a PC application
such that the user is not required to use a window outside that PC
application to select a feature provided by the Intel Software.
1.3 "Intel Derivatives" means any Derivative Works of the Thrustmaster
Software created by Intel.
1.4 "Intel Documentation" means manuals and other materials supplied to
Thrustmaster by Intel, in any medium, relating to build environment,
design, maintenance, installation, operation, or training relating to
the Intel Software.
1.5 "Intel's Intellectual Property Rights" means copyrights in the Intel
Software as delivered and, to the minimum extent necessary to exercise
the copyright license, (i) claims of patents and patent
1
<PAGE>
applications that read on inventions incorporated in the Intel Software
as delivered and (ii) trade secrets in the Intel Software as delivered.
"Intel's Intellectual Property Rights" do not include any patent or
patent application claims relating to semiconductors, chipsets or
semiconductor manufacturing technology.
1.6 "Intel Software" means Intel -Registered Trademark- Multi-Point Audio
Software, Intel-Registered Trademark- Launch & Connect Software and
PreseNce Software components as more fully described in Exhibit A, and
includes any bug fix or updates for such Software as may be provided by
INTEL at its discretion, all as delivered by Intel to Thrustmaster
hereunder.
1.7 "Licensed Products" means any software developed by Thrustmaster (other
than the Thrustmaster Software) that incorporates the Intel Software,
and is (i) distributed by Thrustmaster with the Thrustmaster Hardware
or Thrustmaster Headsets or (ii) available via download from any
Thrustmaster or other websiteor (iii) bundled with software developed
by PC application independent software vendors or (iv) distributed as
stand-alone products via retail channels or (v) bundled with hardware
developed by PC independent hardware vendors or PC original equipment
manufacturers. The term "Licensed Products" shall include Thrustmaster
Hardware and Thrustmaster Headsets when bundled with the Intel
Software.
1.9 "Maintenance Release" means any release or `patch' to an existing
software release designed primarily to correct bugs or errors in
previous releases or to maintain compatibility with general purpose
software applications, web browsers, operating systems, hardware or
commonly used formats.
1.10 "Major Release" means a significantly enhanced, improved, or revised
release of software, including but not limited to any substitute or
replacement thereof, other than a Maintenance Release and a Minor
Release. A Major Release is customarily signified in the software
industry by a new, larger digit to the left of the decimal point in a
version number, such as x.1, where "x" denotes the Major Release
number.
1.12 "Minor Release" means a moderate improvement or enhancement to an
existing software release, other than a Major Release or a Maintenance
Release. A Minor Release is customarily signified in the software
industry by a change in the digit that appears to the right of the
decimal point following the version number, such as 1.x, where "x"
denotes the Minor Release number.
1.13 "New Release" means Minor Releases and Major Releases.
1.14 "Object Code" means the machine-readable and machine-executable
computer programming code that is compiled and/or assembled from the
Source Code.
1.15 "Pre-Release" means any Alpha, Beta or other version of a software or
hardware product that is distributed internally and externally on a
limited basis for testing and evaluation purposes and that is not
designated as a product release by the developing party.
1.16 "Retail Purchase" means actual purchase of a Licensed Product by an
ultimate end-user. The Retail Purchase numbers reported to Intel by
Thrustmaster will be a percentage of total units shipped less returns
as reported in Thrustmaster's quarterly and/or audited annual financial
statements, e.g., 10Q, 10K.
1.18 "Source Code" means computer-programming code, in human-readable format
and in electronic form, from which Object Code is compiled or
assembled.
1.19 "Thrustmaster Documentation" means manuals and other materials supplied
to Intel by Thrustmaster, in any medium, relating to build environment,
design, maintenance, installation, operation, or training relating to
the Thrustmaster Software.
1.20 "Thrustmaster Hardware" means PC game controllers and related products
designed,
2
<PAGE>
developed, and manufactured by or for Thrustmaster for the PC
game market segment and sold under the Thrustmaster name.
1.21 "Thrustmaster Headsets" means headsets designed, developed and
manufactured by or for Thrustmaster and sold under the Thrustmaster
name.
1.22 "Thrustmaster Intellectual Property Rights" means copyrights in the
Licensed Products and Thrustmaster Software and, to the minimum extent
necessary to exercise the copyright license, (i) claims of patents and
patent applications that read on inventions incorporated in the
Licensed Products and Thrustmaster Software as delivered and (ii) trade
secrets in the Licensed Products and Thrustmaster Software as
delivered.
1.23 "Thrustmaster Software" means software developed by Thrustmaster for
the purposes of creating Internet communication and community solutions
that is more fully described in Exhibit B. Thrustmaster Software will
not include the Intel Software, in whole or in part. All software
developed by Thrustmaster that contains the Intel Software as permitted
by this Agreement is a "Licensed Product".
1.24 "Warrants" means the warrants, in form attached hereto as Exhibit E, to
purchase 200,000 shares of Thrustmaster common stock, with a price per
share determined in accordance with Section E of this Agreement.
SECTION 2. THRUSTMASTER OBLIGATIONS
2.1 Licensed Product Road Map Documentation. Thrustmaster shall provide
Intel documentation, to the satisfaction of Intel, demonstrating
Thrustmaster's road map for distribution of the Intel Software as
permitted by this Agreement. The road map documentation shall contain
marketing data, product information, technical information, and such
other information, as the parties shall agree ("Road Map
Documentation"). Thrustmaster shall provide Intel the initial Road Map
Documentation within two (2) weeks of execution of this Agreement.
Thrustmaster shall provide Intel updates to the Road Map Documentation
with the reports submitted to Intel as described in Exhibit C.2.
2.2 Licensed Products. Thrustmaster shall use best efforts to integrate the
Intel Software into or adapt the Intel Software for use with Licensed
Products. Thrustmaster shall use best efforts to market, promote and
distribute the Licensed Products as permitted by this Agreement and
meet the marketing and distribution requirements and milestones set
forth in and reported according to Exhibit C attached hereto and
incorporated herein by this reference. If Intel, at its discretion,
elects to put out a Maintenance Release or New Release of the Intel
Software and elects to provide the same to Thrustmaster under the terms
and conditions of this Agreement, Thrustmaster shall use reasonable
commercial efforts to stop distributing the then current version of the
Intel Software within ninety (90) days of receiving the Maintenance
Release or New Release of the Intel Software, and distribute the
Maintenance Release or New Release in a New Release of the Licensed
Products.
2.3 Thrustmaster shall deliver the Thrustmaster Software to Intel in source
and object code form for Intel's use in accordance with the license
grant set forth in Section 4.7 and 4.8. Thrustmaster shall provide
Intel all Thrustmaster Documentation for Intel to compile the
Thrustmaster Software Object Code from Source Code.
2.5 Pre-Release Intel Software. Thrustmaster shall evaluate all Pre-Release
Intel Software provided by Intel to Thrustmaster and provide Intel
written evaluation reports no later than two
3
<PAGE>
weeks after delivery of the Pre-Release Intel Software to Thrustmaster.
Thrustmaster's evaluation shall include evaluation of Pre-Release Intel
Software compatibility with the top five major PC sound cards. The top
five major PC sound cards shall be measured and determined by
independently reported sales out data.
2.6 Pre-Release/Licensed Products. Thrustmaster shall provide Intel copies
of all Pre-Release Licensed Products, both Source Code and Object Code,
as soon as the Releases are made or otherwise available, subject to the
license restrictions herein. Thrustmaster shall use commercially
reasonable efforts to incorporate any suggestions made by Intel in
regard to the Licensed Products.
2.7 New Release/Maintenance Release. Thrustmaster shall provide Intel all
New Releases/ Maintenance Releases of the Licensed Products subject to
the license restrictions herein.
2.8 PC Game Independent Software Vendors. Thrustmaster shall use best
efforts to engage independent software vendors, and obtain their
written commitment to bundle Licensed Products with compatible PC game
software applications in accordance with the milestones set forth in
and reported according to Exhibit C. As between Intel and Thrustmaster,
these distribution milestones shall be deemed to be Thrustmaster's
obligation.
2.9 Warrants. Upon execution of this Agreement, Thrustmaster shall issue to
and deliver to Intel the Warrants at a purchase price per share equal
to the best price given to any investor in Thrustmaster's private
placement round being conducted on or about August, 1999. If
Thrustmaster is unable to raise private financing by the Effective Date
of this Agreement, Thrustmaster shall issue and deliver to Intel the
Warrants at a purchase price per share equal to a 15% discount on the
average closing price for Thrustmaster shares for the five (5) business
days preceding the Effective Date of this Agreement. Intel's
obligations under this Agreement and Thrustmaster's license rights are
expressly conditioned on Thrustmaster's delivery of the Warrants to
Intel. Intel shall have the right to exercise the Warrants upon
delivery thereof to Intel or any time thereafter at Intel's discretion
as set forth in the Warrants. No breach of this Agreement shall be
considered a breach of the Warrants, but a breach of the terms of the
Warrants by Thrustmaster shall be considered a material breach of this
Agreement by Thrustmaster.
2.10 Thrustmaster shall use commercially reasonable efforts to ensure all
Licensed Products comply with the compatibility requirements in Exhibit
H of this Agreement.
2.11 Board Observer. Thrustmaster shall, at Intel's request, take any and
all corporate action necessary to allow Intel to have a non-voting
observer attend Thrustmaster's board of directors meetings. The rights
of the Intel observer shall be consistent with those customary in the
industry and as Intel and Thrustmaster may agree. The observer position
shall be open for Intel's continued use and participation in all
Thrustmaster Board of Director meetings and activities for as long as
Intel holds greater than fifty (50) percent of such Thrustmaster
Warrants or any Thrustmaster stock converted there from and issued
herein.
2.12 Non-Solicitation. Thrustmaster covenants and agrees that it will not
directly or indirectly solicit the services or employment of any Intel
Architecture Labs green badge contractor or blue badge employee without
the express prior written consent of Intel. This Section 2.12 shall
survive any termination or expiration of this Agreement for a period of
one (1) year.
2.13 Necessary Licenses. Thrustmaster shall obtain any and all licenses from
third parties that
4
<PAGE>
Thrustmaster deems necessary to distribute the Intel Software and all
other software licensed from Intel whether pursuant to this Agreement
or otherwise.
SECTION 3. INTEL OBLIGATIONS
3.1 Intel Software. Intel shall use reasonable commercial efforts to (i)
release the first code drop of the Intel Multi-Point Audio Software in
Source Code and the Intel Launch & Connect Software and Presence
Software components in Object Code to Thrustmaster no later than the
Effective Date (ii) release the final code drop of the Intel
Multi-Point Audio Software in Source Code by October 18, 1999 and (iii)
release the final code drop of the Intel Launch & Connect Software and
Presence Software components in Source Code by September 17, 1999 to
Thrustmaster.
3.2 Intel Training. Intel will, at a mutually agreeable time, provide 2-3
days of training to Thrustmaster technical representatives on the Intel
Software at Intel's Hillsboro, OR facilities.
3.3 Pre-Release Intel Software. Intel shall provide Thrustmaster with
copies of Pre-Release Intel Software, when and as selected by Intel at
its discretion, but no later than 1 week after such Pre Release Intel
Software is released to a third party Thrustmaster competitor in the
on-line gaming market. Thrustmaster may use the Alpha and Beta releases
for internal, non-commercial purposes only, and shall not disclose or
distribute them to any third party except as expressly agreed in
writing by Intel. Thrustmaster shall provide Intel feedback on
Pre-Release Intel Software as set forth in Section 2.5.
3.4 Maintenance Releases. If Intel at its discretion elects to do a
Maintenance Release of the Intel Software, and Intel elects to make
such Maintenance Release available to other similarly situated
licensees of the Intel Software, Intel will provide such Maintenance
Release to Thrustmaster.
SECTION 4. LICENSES
4.1 Intel Software Source Code. Subject to the terms and conditions of this
Agreement, Intel hereby grants to Thrustmaster a worldwide,
non-exclusive, non-transferable, non-sublicensable license under
Intel's Intellectual Property Rights to use the Intel Software Source
Code to the extent and as delivered pursuant to Section 3.1, for
internal use only, solely for the purposes of (i) integrating the Intel
Software Object Code into the Licensed Products, (ii) adapting the
Intel Software so that the Intel Software Object Code can be used and
distributed in conjunction with the Licensed Products, (iii) creating
Derivative Works of the Intel Software for incorporation into Licensed
Products in Object Code form or (iv) providing technical support for
the Thrustmaster Software and Licensed Products. Thrustmaster shall
provide and hereby grants Intel a worldwide, unrestricted license, with
rights to sublicense, with written approval from Thrustmaster which
shall not be unreasonably withheld, under Thrustmaster's intellectual
property rights in all Derivative Works of the Intel Software prepared
by Thrustmaster, to use, make, copy, publicly perform, publicly
display, sell, offer to sell, distribute and import such Derivative
Works; provided that Intel will not need written approval for bug fixes
and similar basic improvements to the Intel Software made by
Thrustmaster.
4.3 Intel Software Object Code. Subject to the terms and conditions of this
Agreement, Intel hereby grants to Thrustmaster a worldwide,
non-exclusive, non-transferable license to reproduce, distribute
through multiple levels of distribution under end user license
agreements no less restrictive than that attached as Exhibit F,
publicly display and publicly perform the Intel Software, only in
Object Code form and only incorporated into or distributed with
Licensed
5
<PAGE>
Products.
4.4 Sublicense. Subject to Intel's prior written approval, which shall not
be unreasonably withheld, Thrustmaster shall have the right to
sublicense the Intel Software, in Object Code form only, to independent
software vendors and only for incorporation into or distribution with
software applications that incorporate or are compatible with the Intel
Software; provided that such independent software vendors (i) agree to
be bound by license terms at least as restrictive as those set forth in
this Agreement as determined by Intel, (ii) shall have no rights to
further sublicense the Intel Software, (iii) agree to provide a
reasonable number of their Intel Software compatible software
applications to Intel for marketing and promotional purposes on terms
similar to those set forth in Section 4.6. Thrustmaster covenants and
agrees to enforce the sublicense agreements at its sole cost and
expense and at Intel's reasonable request.
4.5 Intel Documentation. Subject to the terms and conditions of this
Agreement, Intel hereby grants to Thrustmaster a worldwide,
non-exclusive, non-sublicensable copyright license under Intel's
copyrights in the Intel Documentation to use and reproduce the Intel
Documentation for internal use only, solely for the purposes of (i)
integrating the Intel Software Object Code into the Licensed Products,
(ii) adapting the Intel Software so that the Intel Software Object Code
can be used and distributed in conjunction with Licensed Products,
(iii) developing the Thrustmaster Software or (iv) providing technical
support for the Thrustmaster Software and Licensed Products.
4.6 Restrictions on Thrustmaster. Thrustmaster shall not assign,
sub-license, lease, or in any other way transfer, use, perform, display
or disclose the Intel Software, including any New Release or
Maintenance Release, to any third party or reproduce or distribute any
part of the Intel Software except as specifically provided in this
Agreement. Thrustmaster agrees that it will not use the Intel Software
to create, license, or sell a home intercom based stand-alone product,
or a product with the primary purpose of enabling home intercom-type
communication between PCs until 12/31/00, and the license grants
contained in this Agreement shall not be construed in any way contrary
to this restriction.
4.7 Thrustmaster Software Source Code. Thrustmaster hereby grants to Intel
under Thrustmaster Intellectual Property Rights a perpetual, worldwide,
non-exclusive, royalty-free license to use and reproduce the
Thrustmaster Software Source Code and create Intel Derivatives for
internal use only. The Intel Derivatives and all intellectual property
rights therein shall be the property of Intel subject to Thrustmaster's
ownership of the Thrustmaster Software.
4.8 Thrustmaster Software Object Code. Thrustmaster hereby grants to Intel
a worldwide, non-exclusive, royalty-free license to use, reproduce,
publicly display, and publicly perform the Thrustmaster Software and
Intel Derivatives in Object Code form.
4.9 Thrustmaster Documentation. Thrustmaster hereby grants to Intel under
Thrustmaster's copyrights in the Thrustmaster Documentation a
worldwide, non-exclusive, royalty-free copyright license to use,
reproduce, make Intel Derivatives, perform and display the Thrustmaster
Documentation for internal use only.
4.10 Licensed Products. Thrustmaster hereby grants to Intel a non-exclusive,
worldwide, royalty free license to use, reproduce a reasonable number
of copies, distribute a reasonable number of copies, publicly perform
and publicly display the Licensed Products for promotional purposes to
demonstrate the Intel Software, the Thrustmaster Software included in
the Licensed Products, and other relevant Intel products.
6
<PAGE>
4.11 Restrictions on Intel. Intel shall not assign, sub-license, lease, or
in any other way transfer, use, perform, display or disclose the
Thrustmaster Software, including any New Release or Maintenance
Release, to any third party or reproduce or distribute any part of the
Thrustmaster Software except as specifically provided in this
Agreement.
SECTION 5. PROPRIETARY RIGHTS
5.1 Intel General. The Intel Software, including all New Releases and
Maintenance Releases (whether prepared by Intel or any third party),
and all intellectual property rights therein, in whole or in part, and
all copies of the Intel Software, including all New Releases and
Maintenance Releases, are and shall remain owned by and be the sole and
exclusive property of Intel, subject only to Thrustmaster's ownership
of the Thrustmaster Software, Thrustmaster Derivative Works and the
license rights granted to Thrustmaster by Intel under this Agreement.
5.2 Thrustmaster General. The Thrustmaster Software, including all New
Releases and Maintenance Releases (whether prepared by Thrustmaster or
any third party), and all intellectual property rights therein, in
whole or in part, and all copies of the Thrustmaster Software,
including all New Releases and Maintenance Releases, are and shall
remain owned by and be the sole and exclusive property of Thrustmaster,
subject only to Intel's ownership of the Intel Software, Intel
Derivatives and the license rights granted to Intel by Thrustmaster
under this Agreement.
5.3 Intel Software Source Code Control Restrictions. Thrustmaster shall not
disclose or otherwise make any part of the Intel Software Source Code,
(whether or not modified by Thrustmaster), available, in any form, to
any person other than Thrustmaster employees whose job performance
requires such access in order to prepare Licensed Product(s) and
Maintenance Release(s) as permitted by this Agreement. The Intel
Software Source Code shall at all times be under the direct control of
the individual identified in attached Exhibit G or such other
individual that the parties may agree from time to time; provided,
however, that any such individual shall have primary responsibility for
the preparation of Licensed Products and Maintenance Releases as
permitted by this Agreement. All use of the Intel Software Source Code
and all copies thereof shall be confined to the location identified in
attached Exhibit G. Thrustmaster shall not move the Intel Software
Source Code to any other location without the express written consent
of Intel. The Intel Software Source Code and all copies thereof shall
be conspicuously labeled "Intel Confidential." Thrustmaster shall
instruct all employees on these obligations with respect to use,
copying, protection, and confidentiality of Intel Software Source Code.
Even after this Agreement terminates, the obligations of this section
shall remain in effect until the Intel Software Source Code rightfully
becomes publicly known.
5.4 Thrustmaster Software Source Code Control Restrictions. Except as
expressly permitted by the terms of this Agreement, Intel shall not
disclose or otherwise make any part of the Thrustmaster Software Source
Code, (whether or not modified by Intel), available, in any form, to
any person other than Intel employees and contractors. The Thrustmaster
Software Source Code and all copies thereof shall be conspicuously
labeled "Thrustmaster Confidential." Intel shall instruct all employees
and contractors on these obligations with respect to use, copying,
protection, and confidentiality of Thrustmaster Software Source Code.
Even after this Agreement terminates, the obligations of this section
shall remain in effect until the Thrustmaster Software Source Code
rightfully becomes publicly known.
5.5 No Other Rights in Intel Property. No rights or licenses are granted by
Intel to Thrustmaster
7
<PAGE>
under this Agreement, expressly, by estoppel or by implication, with
respect to any proprietary information or patent, copyright, trade
secret or other intellectual property right owned or controlled by
Intel, except as expressly provided in this Agreement.
5.6 No Other Rights in Thrustmaster Property. No rights or licenses are
granted by Thrustmaster to Intel under this Agreement, expressly, by
estoppel or by implication, with respect to any proprietary information
or patent, copyright, trade secret or other intellectual property right
owned or controlled by Thrustmaster, except as expressly provided in
this Agreement.
SECTION 6. TECHNICAL SUPPORT AND UPDATES
6.1 Thrustmaster. Thrustmaster shall provide all technical and other
support at all levels for its customers, the Thrustmaster Software and
all Licensed Products in a manner consistent with the terms and
conditions of this Agreement.
6.2 Intel. Intel will provide Thrustmaster commercially reasonable
technical support of the Intel Software until 11/1/99 or up to the
first shipment of Licensed Products to an outlet where the Licensed
Products are available for Retail Purchase or internet download,
whichever is sooner; provided, however, that Intel shall have no
obligation to assign more than one (1) engineer to providing the
support at any one time during this period. Following the first
shipment of Licensed Products to an outlet where it is available for
Retail Purchase, Intel shall have no further obligation to provide
Thrustmaster support for the Intel Software through the term of this
Agreement or thereafter. INTEL SHALL NOT BE REQUIRED TO PROVIDE ANY
OTHER TECHNICAL OR OTHER SUPPORT, ASSISTANCE, INSTALLATION, TRAINING OR
OTHER SERVICES EXCEPT AS SPECIFICALLY PROVIDED IN THIS AGREEMENT. INTEL
SHALL NOT BE REQUIRED TO PROVIDE ANY MAINTENANCE RELEASES, NEW
RELEASES, UPDATES, ENHANCEMENTS OR EXTENSIONS TO THE INTEL SOFTWARE OF
ANY KIND OR PROVIDE ANY TECHNICAL SUPPORT FOR THE LICENSED PRODUCTS AND
THRUSTMASTER SOFTWARE.
SECTION 7. MARKETING AND PROMOTION
7.1 Thrustmaster. Thrustmaster shall use best efforts to market and
distribute Licensed Products as set forth in and reported according to
Exhibit C.
7.2 Press Release. The parties will issue a press release describing the
Intel-Thrustmaster cooperation in relation to the Intel Software at
such time as the parties may agree after execution of this Agreement.
Text of the press release will be subject to the prior review and
approval of Intel and Thrustmaster.
SECTION 8. COPYRIGHTS, ATTRIBUTION, TRADEMARK
8.1 Copyrights. The Intel Software and the Thrustmaster Software are
copyrighted and are protected by United States copyright laws and
international treaty provisions. Thrustmaster shall not remove or
obscure any of Intel's or its vendors' copyright notices or other
proprietary notices from the Intel Software and Intel shall not remove
or obscure any of Thrustmaster's or its vendors' copyright notices or
other proprietary notices from Thrustmaster Software.
8.2 Attribution. Each Licensed Product shall display "Portions Copyright
1999 Intel Corporation" in "About" boxes of Licensed Products.
Thrustmaster and its licensees shall display "Intel-Registered
Trademark- Multi-Point Audio, Launch & Connect, and Presence
technologies by Intel Corporation" (or such other
8
<PAGE>
attribution that Intel may reasonably request) in 10 point or larger
type in start-up or "splash" screens of Licensed Products. Intel shall
at its discretion provide Thrustmaster with an Intel-Registered
Trademark- Optimizer logo bit-map for this attribution, which
Thrustmaster shall, if requested by Intel, employ in the Licensed
Products and packaging of the Licensed Products as reasonably requested
by Intel. All use of the Intel-Registered Trademark- Optimizer logo
shall be in accordance with the license terms, guidelines, restrictions
and requirements set forth in attached Exhibit D and as may be provided
by Intel to Thrustmaster from time to time. Thrustmaster shall, if
requested to employ the Intel Optimizer Logo, execute the license
agreement in the form contained in Exhibit D.
8.3 Trademarks. No rights or licenses are granted by this Agreement,
expressly or by implication, to use any Intel trademark or trade name,
or any word or mark similar thereto, in connection with any products
manufactured, used or sold by Thrustmaster, or as part of
Thrustmaster's corporate, firm or trade name, or for any other purpose,
except as expressly provided for in this Agreement. No rights or
licenses are granted by this Agreement, expressly or by implication, to
use any Thrustmaster trademark or trade name, or any word or mark
similar thereto, in connection with any products manufactured, used or
sold by Intel, or as part of Intel's corporate, firm or trade name, or
for any other purpose, except as expressly provided for in this
Agreement.
SECTION 9. NO WARRANTIES; LIMITED LIABILITY
9.1 INTEL SOFTWARE AS IS. INTEL MAKES NO WARRANTY OF ANY KIND REGARDING THE
INTEL SOFTWARE AND ANY SUPPORT, INPUT, RECOMMENDATIONS, ASSISTANCE OR
OTHER CONTRIBUTIONS OF ANY KIND THAT INTEL MAY MAKE TO THRUSTMASTER IN
REGARD TO THE THRUSTMASTER SOFTWARE. THE INTEL SOFTWARE IS LICENSED TO
THRUSTMASTER ON AN "AS IS" BASIS. INTEL SPECIFICALLY DISCLAIMS ANY
IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT OF ANY
INTELLECTUAL PROPERTY RIGHT AND FITNESS FOR A PARTICULAR PURPOSE.
9.2 THRUSTMASTER SOFTWARE AS IS. THRUSTMASTER MAKES NO WARRANTY OF ANY KIND
REGARDING THE THRUSTMASTER SOFTWARE AND ANY SUPPORT, INPUT,
RECOMMENDATIONS, ASSISTANCE OR OTHER CONTRIBUTIONS OF ANY KIND THAT
THRUSTMASTER MAY MAKE TO THE INTEL SOFTWARE. THRUSTMASTER SOFTWARE IS
LICENSED TO INTEL ON AN "AS IS" BASIS. THRUSTMASTER SPECIFICALLY
DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT OF
ANY INTELLECTUAL PROPERTY RIGHT AND FITNESS FOR A PARTICULAR PURPOSE.
9.3 LIMITED LIABILITY. EXCEPT FOR THRUSTMASTER'S DUTY TO INDEMNIFY, DEFEND
AND HOLD INTEL HARMLESS WITHOUT LIMITATION PURSUANT TO SECTION 13 OF
THIS AGREEMENT, AND EXCEPT FOR A MATERIAL BREACH BY THRUSTMASTER OF THE
INTEL SOFTWARE SOURCE CODE CONTROL RESTRICTIONS CONTAINED IN THIS
AGREEMENT, NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGE OF ANY KIND. IN NO EVENT SHALL A
PARTY OTHERWISE BE LIABLE TO THE OTHER UNDER THIS AGREEMENT IN AN
AMOUNT EXCEEDING THE CASH PAYMENTS RECEIVED BY IT FROM THE OTHER PARTY.
As used in this Section 9.3, the term "CASH PAYMENTS" shall not include
the Warrants or any value obtained by Intel therefrom.
SECTION 10. TERM AND TERMINATION
9
<PAGE>
10.1 Term. The term of this Agreement shall commence on the Effective Date
and shall continue for [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SEC] years thereafter. This Agreement may be
extended for such additional term and under such conditions as the
parties may mutually agree in a duly executed writing.
10.2 Termination. Subject to Section 10.4, either party may terminate this
Agreement and the perpetual licenses granted by it herein for cause in
the event of a material breach of the terms of this Agreement or the
perpetual license by the other party, provided that the non-breaching
party gives written notice of such material breach to the breaching
party and the breaching party has not cured such material breach within
thirty (30) days of receipt of such notice.
10.3 Failure to Meet Milestones.
10.3.1 If Thrustmaster fails to meet any of the distribution
milestones set for [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SEC] as set forth in and reported
according to Exhibit C, Intel has the right to terminate this
Agreement and the license rights granted to Thrustmaster by
Intel in this Agreement pursuant with section 10.4 of this
Agreement.
10.4 Effect of Termination.
10.4.1 Licenses. The licenses granted by Intel to Thrustmaster and by
Thrustmaster to Intel pursuant to Section 4 of this Agreement
may only be revoked for uncured material breach of the license
terms as provided in this Agreement. Each party reserves the
right to verify the other party's compliance with this
Agreement and the licenses granted herein by reasonable means,
and each party agrees to cooperate with the other in that
regard. In the event that a party is in material breach of any
of the licenses granted herein, the non-breaching party has
the right to terminate all license rights granted to the
breaching party herein upon thirty (30) days written notice to
the breaching party if the breaching party fails to correct
such material breach within the thirty (30) day notice period.
For the purpose of this Section 10, however, Thrustmaster
shall be deemed to be in uncured material breach of this
Agreement and its license rights if Thrustmaster fails to meet
the milestones set forth in and reported according to Exhibit
C as described in Section 10.3.1.
10.4.2 If Thrustmaster's license to distribute the Intel Software
terminates pursuant to Section 10.1 or Section 10.3,
Thrustmaster shall have the right to distribute finished goods
inventory of the Licensed Products for ninety (90) days beyond
the termination date.
10.4.3 If Intel terminates this Agreement or any license herein
because of Thrustmaster's uncured material breach,
Thrustmaster will turn over any Thrustmaster Software pointer,
which determines the URL that hosts the multipoint audio
conference for end users, to Intel, and hereby assigns and
transfers all of its ownership and other rights in the same to
Intel.
10.4.4 Other. Sections 2.9, 4 (except to the extent a license is
terminated for uncured material breach as provided in this
Agreement), 5, 6.1, 8, 9, 10, 11, 12, 13, 14, 15, 16 and 17
shall survive any termination or expiration of this Agreement.
SECTION 11. CONFIDENTIALITY AND NON-DISCLOSURE
10
<PAGE>
11.1 Source Code. The Intel Software Source Code constitutes proprietary,
confidential, and trade secret information of Intel, and the
Thrustmaster Software Source Code constitute proprietary, confidential,
and trade secret information of Thrustmaster. Each of the parties shall
ensure that the Source Code of the other party receives at least the
same degree of confidentiality that is accorded to its own Source Code.
Except as expressly permitted by this Agreement, neither party shall
disclose the other party's Source Code to any third party absent prior
written approval from the other party and a prior written
confidentiality and nondisclosure agreement with each such third party
that is satisfactory to the other party at its sole discretion. This
provision is supplemented by Section 5.3 of this Agreement.
11.2 CNDA. Except as expressly provided herein, this Agreement and all
disclosures relating thereto, shall be governed by corporate
nondisclosure agreement ("CNDA") number 23300. In addition, this
Agreement and the terms thereof are confidential and shall not be
disclosed to any third party without the prior written consent of the
non-disclosing party. Notwithstanding anything else in this Agreement
or the CNDA to the contrary, either party is free to use residuals of
the confidential information of the other party for any purpose,
including use in development, manufacture, promotion, sale and
maintenance of its own products and services. The term "residuals" as
used herein means information in nontangible form retained in the
unaided memories of persons who have access to the confidential
information.
SECTION 12. NOTICES
All notices required or permitted to be given hereunder shall be in writing,
shall make reference to this Agreement, and shall be delivered by hand, or
dispatched by prepaid nationally recognized overnight air courier or by
registered or certified airmail, postage prepaid, addressed as follows:
Such notices shall be deemed served on the earlier of: (i) actual receipt by
addressee, (ii) two (2) days after deposit with a nationally recognized
overnight air courier or (iii) five (5) days after appropriate mailing. Either
party may give written notice of a change of address and, after notice of such
change has been received, any notice or request shall thereafter be given to
such party at such changed address.
SECTION 13. INDEMNITY
Thrustmaster shall defend, indemnify, and hold Intel harmless from and against
any loss, cost, liability, damages and expense (including reasonable attorney
fees) arising from any action or claim brought or threatened against
Thrustmaster or Intel or their customers alleging that the Thrustmaster Software
or any Licensed Product infringes any patent, copyright, trademark, trade
secret, or other intellectual property right of any third party provided that
Intel (i) promptly notifies Thrustmaster in writing of any such suit or
proceeding brought against it, (ii) provides Thrustmaster at its sole discretion
with sole control over the defense or settlement of such suit or proceeding, and
(iii) provides reasonable information and assistance in the defense and/or
settlement of any such claim or action brought against it. Without limiting
Thrustmaster's duty to defend and hold Intel harmless, Thrustmaster's indemnity
obligation hereunder shall not apply to any successful suit or proceeding
brought directly against Intel based solely upon a claim that the Intel Software
or a part thereof (except any Thrustmaster modification) alone and not in
combination with any other technology or product, constitutes a direct
infringement of any United States patent, copyright, trademark, trade secret, or
other intellectual property right of any third party; provided that Thrustmaster
(i) promptly notifies Intel in writing of any such suit or proceeding if Intel
has not itself received notice thereof, (ii) provides Intel at its sole
discretion and at its own expense with sole control over the defense or
settlement of such suit or proceeding, (iii) provides reasonable information and
assistance in the defense and/or
11
<PAGE>
settlement of any such claim or action, and (iv) a court of competent
jurisdiction (after appropriate appeals have been filed) concludes that
Intel's direct actions regarding the Intel Software, or a part thereof
(except any Thrustmaster modification), alone and not in combination with any
other technology or product constitutes a direct infringement of any United
States patent issued prior to the Effective Date, copyright, trademark, trade
secret, or other intellectual property right of any third party and that
Intel has direct liability to such third party. The exception to
Thrustmaster's indemnity obligation in this Section 13 is specifically
intended to cover the limited situation where Intel is found by a court of
competent jurisdiction to be directly liable to a third party for direct (as
opposed to any indirect) infringement and is not in any way intended to
otherwise limit Thrustmaster's liability to Intel or to any third party in
regard to Licensed Products or any part thereof. Intel shall have no
obligation of any kind to defend, indemnify or hold Thrustmaster harmless
from any claim brought against Thrustmaster that may implicate the Intel
Software, but Intel will provide Thrustmaster reasonable information and
assistance in regard to the defense or settlement of any such claim. The
parties agree that this Section 13 is consistent with the intent of the
indemnity provision in the parties' first agreement relating to multi-point
audio.
SECTION 14. FORCE MAJEURE
Neither party shall be liable for any failure to perform due to unforeseen
circumstances or causes beyond that party's reasonable control, including, but
not limited to, acts of God, war, riot, embargoes, acts of civil or military
authorities, delay in delivery by vendors, fire, flood, earthquake, accident,
strikes, inability to secure transportation, facilities, fuel, energy, labor or
materials. In the event of force majeure, the time for delivery or other
performance will be extended for a period equal to the duration of the delay
caused thereby.
SECTION 15. ASSIGNMENT, SALE OR TRANSFER
Neither party shall transfer or assign any of its rights under this Agreement to
any person except as expressly permitted herein. Any attempt to assign any
rights, duties or obligations hereunder without the other party's written
consent, which shall not be unreasonably withheld, shall be void.
SECTION 16. RELATIONSHIP OF THE PARTIES
This Agreement shall not be construed to create a partnership, joint venture or
other agency relationship between the parties. Neither party hereto will be
deemed the agent or legal representative of the other for any purpose whatsoever
and each party will act as an independent contractor with regard to the other in
its performance under this Agreement. Nothing herein will authorize either party
to create any obligation or responsibility whatsoever, express or implied, on
behalf of the other or to bind the other in any manner, or to make any
representation, commitment or warranty on behalf of the other.
SECTION 17. MISCELLANEOUS
17.1 Export Restrictions. The Intel Software, the Thrustmaster Software and
the Licensed Products may be controlled for export purposes by the U.S.
Government. Neither party shall export, either directly or indirectly,
any such material without first obtaining any required license or other
approval from the U.S. Department of Commerce or any other agency or
department of the United States Government as required. The parties
agree to provide reasonable cooperation to one another in connection
with obtaining any such licenses or approvals.
17.2 Governing Law. Any claim arising under or relating to this Agreement
shall be governed by the
12
<PAGE>
internal substantive laws of the State of Delaware, without regard to
principles of conflict of laws. Any dispute arising out of this
Agreement shall be brought in, and the parties consent to personal and
exclusive jurisdiction of and venue in, the state and federal courts
within Washington or Multnomah County, Oregon.
17.3 Integration. This Agreement, together with the and the CNDA, constitute
the entire agreement between Thrustmaster and Intel relating to the
subject matter hereof. This Agreement shall only be amended by a
writing signed by both parties.
17.4 Headings. The headings to the paragraphs and subparagraphs of this
Agreement are to facilitate reference only, do not form a part of this
Agreement, and will not in any way affect the interpretation thereof.
17.5 Severability. The terms and conditions of this Agreement are severable.
If any paragraph, provision, or clause in this Agreement shall be found
or be held to be invalid or unenforceable in any jurisdiction in which
this Agreement is being performed, the remainder of this Agreement
shall be valid and enforceable and the parties shall use good faith to
negotiate a substitute, valid and enforceable provision that most
nearly effects the parties' intent in entering into this Agreement.
17.6 Remedies. The rights and remedies provided in this Agreement are in
addition to any other rights and remedies provided at law or in equity.
17.7 Injunctive Relief. Both parties agree that damages alone would be
insufficient to compensate the licensing party for a breach of source
code control and non-disclosure provisions of this Agreement,
acknowledges that irreparable harm would result from such a breach of
this Agreement, and consents to the entering of an order for injunctive
relief to prevent such a breach or further breach and the entering of
an order for specific performance to compel performance of such
obligations under this Agreement.
17.8 Counterparts. This Agreement may be executed in counterparts.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first written above
INTEL CORPORATION THRUSTMASTER, INC.
By: /s/ Craig Kinnie By: /s/ Ronald Resnick
------------------------- -------------------------------
Craig Kinnie Ronald Resnick
- ----------------------------- ---------------------------------
Printed Name Printed Name
Title: Vice President Title: VP - Marketing
----------------------- -----------------------------
Date: 5/27/98 Date: 5/28/98
------------------------ -----------------------------------
13
<PAGE>
EXHIBIT A
DESCRIPTION OF SOFTWARE AND DOCUMENTATION
DESCRIPTION
1. INTEL-Registered Trademark- MULTI-POINT AUDIO SOFTWARE COMPONENT:
Windows* 95 and Windows* 98 compatible software that allows the user, in
conjunction with some method to exchange IP addresses, the ability to
create and join an internet telephony conference with the user limit to be
determined by the container application.
2. DISTRIBUTED PRESENCE COMPONENT:
Windows* 95 and 98 compatible software that allows an application, in
conjunction with a Microsoft Internet Locator Service Server, the ability
to advertise the presence of one or more local users and to monitor the
presence of peers on each local user's peer list.
3. INTEL-Registered Trademark- LAUNCH & CONNECT SOFTWARE COMPONENT:
Windows* 95 and 98 compatible software that allows a controlling
application to dynamically enumerate applications/protocols in common
between two endpoints, launch and then automatically connect a selected
application/protocol at the two endpoints or to a third party server.
SOFTWARE
The following components are included in the Software licensed to Thrustmaster
hereunder:
The INTEL-Registered Trademark- MULTI-POINT AUDIO COMPONEnt component will
include the following:
1. A COM based client component API.
2. API documentation.
3. Sample test application.
The DISTRIBUTED PRESENCE COMPONENT will include the following:
1. A COM based client component API.
2. API documentation.
3. Sample test application.
This INTEL-Registered Trademark- LAUNCH & CONNECT COMPONENT will include
the following:
1. A COM based client component API.
2. API and usage documentation.
3. Sample test application.
4. Launching support for a limited set of H323 phone applications, games
that support Microsoft's DirectPlayLobby Application Programming Interface,
and applications that conform to the Launch & Connect native launching API.
14
<PAGE>
EXHIBIT B
DESCRIPTION OF LICENSED PRODUCTS
Software that provides a meeting and launching capability for the Intel
Software.
The Thrustmaster Software may include the following:
1. A HTTP server hosting a web page
2. An Internet location server
3. A buddy list or other presence detection utility
15
<PAGE>
EXHIBIT C
MILESTONES
C.1 Thrustmaster shall achieve the following Licensed Products download
milestones:
Licensed Products Downloads and/or Retail Purchases
Date Cumulative Total
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC]
C.2 Thrustmaster shall report the cumulative totals above within thirty
(30) days of the specific milestone date together with such data and
supporting documentation as Intel shall reasonably request.
C.3 Thrustmaster shall achieve the following milestones regarding
distribution of the Licensed Products in the PC gaming markets:
* Sign [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC]
agreements with ISVs or internet game related sites for distribution of
the Licensed Products to on-line gaming users by [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SEC]
* Sign [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC]
total agreements with ISVs or internet game related sites for
distribution of the Licensed Products to on-line gaming users by
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC].
Thrustmaster agrees to maintain at least [CONFIDENTIAL PORTION OMITTED
AND FILED SEPARATELY WITH THE SEC] agreements with ISVs or internet
game related sites through [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SEC].
C.4 The milestone dates set forth in the Exhibit C are based on the
assumption that Intel will deliver the Intel Software to Thrustmaster
on the date set forth in Section 3.1. If actual delivery of the Intel
Software to Thrustmaster under Section 3.1 is a date later than that
specified in Section 3.1, the [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE SEC] milestone shall be reduced to match
Thrustmaster's actual Retail Purchases through [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE SEC], and subsequent quarterly
cumulative milestones shall be reduced to reflect the [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE SEC] Retail Purchases
adjustment.
16
<PAGE>
EXHIBIT D
INTEL OPTIMIZER LOGO TRADEMARK LICENSE AGREEMENT
THIS INTEL OPTIMIZER LOGO TRADEMARK LICENSE AGREEMENT ("Agreement") is made by
Intel Corporation having offices at ____________________( "Intel") and
Thrustmaster, Inc., having offices at ______________________________
("Licensee").
WHEREAS, Intel and Licensee have entered into that certain Software Development
and License Agreement dated ________ ("Software License") wherein Intel licensed
to Licensee certain multi-point audio remote server software (as defined in the
Software License, the "Intel Software") for distribution, including but not
limited to distribution with Licensee's PC game controllers and headsets (as
defined in the Software License, the "Licensed Products").
WHEREAS, the Software License provides that Thrustmaster shall, at Intel's
request, use the Intel Optimizer Logo as set forth in this Agreement in
conjunction with distribution of the Intel Software with Licensed Products;
WHEREAS, Intel has a specific Intel Optimizer Logo (as defined below, the
"Licensed Logo") that is associated with specific optimized code (as defined
below, the "Optimized Code") that is part of the Intel Software; and
WHEREAS, Intel has now requested Thrustmaster to use the Licensed Logo in
conjunction with the distribution of the Optimized Code with Licensed Products
and Thrustmaster has agreed to do the same;
NOW THEREFORE, in consideration of the mutual covenants and promises contained
in this Agreement, and for other good and valuable consideration receipt of
which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
In addition to the definitions set forth in the Recitals, the following terms
have the following meanings:
1.1 "Licensed Logo" means the Logo set forth in Exhibit A hereto,
said Logo including the INTEL trademark, and the OPTIMIZER
designation.
1.2 "Licensed Name" means the name "Intel-Registered Trademark-
Optimizer [Party Line] or such other name that Intel may
designate at its discretion".
1.3 "Licensed Marks" means the Licensed Logo and the Licensed
Name.
1.4 "Intel Marks" means the Licensed Marks, the INTEL trademark
and trade name, and any other marks belonging to Intel.
1.5 "Optimized Code" means those specific Intel Software files
identified on attached Exhibit B, as delivered to Licensee
under the Software License. The Optimized Code is the software
that is specifically associated with the Licensed Logo under
this Agreement
2. LICENSE GRANT. Subject to Licensee's full compliance with the
terms of this Agreement, Intel hereby grants to Licensee a
non-exclusive, non-transferable, royalty-free, revocable
license to use the Licensed Marks in connection with Licensed
Products solely to indicate that the Licensed Products contain
the Optimized Code.
3. PRODUCT QUALITY.
17
<PAGE>
3.1 The Licensed Marks shall be used only on and in connection
with Licensed Products that contain the Optimized Code and
that meet the quality and performance standards customary
in the software industry.
3.2 Licensee shall make no alterations or modifications to the
Optimized Code with which the Licensed Marks are used
except as necessary to integrate the Optimized Code into
Licensed Products; provided that such modification does not
affect the performance and functionality of the Optimized
Code. For the purpose of this Agreement, Licensee agrees
that it will not change, modify, or alter the Optimized
Code in any other way. If Licensee makes any other
modification to the Optimized Code, this Agreement,
including but not limited to Licensee's right to use the
Licensed Marks, shall terminate immediately with respect to
the modified Optimized Code.
3.3 Licensee shall comply with all applicable laws and
regulations in the manufacture, assembly, marketing, and
sale of Licensed Products with which the Licensed Marks are
used.
4. PROPER USAGE.
4.1 Licensee shall comply with the usage and other requirements set
forth in Exhibit A hereto.
4.2 Licensee shall comply with any additional usage guidelines for the
Licensed Marks provided by Intel from time to time. Licensee shall not
alter the Licensed Logo in any way, and shall use the camera-ready or
electronic artwork of the Licensed Logo provided by Intel.
4.3 Licensee shall display Licensed Marks only in a positive manner.
5. RIGHT TO INSPECT.
5.1 Intel shall have the right at its discretion to review,
inspect, and test any Licensed Product with which the Licensed
Marks are used, as well as associated users manuals,
collateral, advertising, and promotional materials, including
web sites, to determine compliance with the terms of this
Agreement. Upon reasonable notice, Licensee shall cooperate
fully in providing Intel access to such Licensed Products and
materials.
5.2 Licensee will deliver to Intel two (2) copies of each
Licensed Product, including source and object code for the
Optimized Code as contained in such Licensed Product, at least
forty five (45) days prior to the commercial release of such
Licensed Product for the purpose of Intel verifying at its
discretion that the Optimized Code has not been modified
inconsistent with the provisions of this Agreement. As used in
this Section 5.2, "Licensed Product" shall include all major,
minor and maintenance releases of a Licensed Product, each of
which shall be separately submitted to Intel as set forth in
this Section 5.2 unless otherwise agreed by Intel in writing.
Licensee may submit pre-release versions of Licensed Product
in order to meet the requirements of this Section 5.2 if the
Optimized Code is not modified in the final release. Intel
will use commercially reasonable efforts to review the
Optimized Code as included in the Licensed Product and notify
Licensee whether the Licensed Product can carry the Intel
Marks as permitted under this Agreement. If Intel fails to
give notice within fifteen (15) days of its receipt of the
Licensed Product that is subject to review, Licensee may use
the Licensed Marks with such Licensed Product unless and until
such right is terminated as permitted by this Agreement.
6. PROTECTION OF INTEREST.
6.1 ACKNOWLEDGMENT OF RIGHTS. Licensee acknowledges Intel's
exclusive rights to the Intel Marks and all goodwill
associated therewith, and acknowledges that any and all use of
the Intel Marks by Licensee inures to the sole benefit of
Intel. Licensee shall not challenge Intel's exclusive rights
in and to the Intel Marks, and shall not do anything that
might harm the reputation or goodwill of Intel or the Intel
Marks.
18
<PAGE>
Licensee shall take no action inconsistent with Intel's
rights in the Intel Marks. If at any time Licensee acquires
any rights in, or registration(s) or application(s) for the
Intel Marks by operation of law or otherwise, Licensee will
immediately and at no expense to Intel assign such rights,
registrations, and/or applications to Intel, along with any
and all associated goodwill.
6.2 ENFORCEMENT. In the event that Licensee becomes aware of
any unauthorized use of the Intel Marks by a third party,
Licensee shall promptly notify Intel in writing and shall
cooperate fully, at Intel's expense, in any enforcement of
Intel's rights against such third party. The right to enforce
Intel's rights in the Intel Marks rests entirely with Intel
and shall be exercised at Intel's sole discretion; Licensee
shall not commence any action or claim to enforce Intel's
rights in the Intel Marks.
7. DISCLAIMER BY INTEL. INTEL MAKES NO REPRESENTATIONS OR WARRANTIES OF
ANY KIND RESPECTING THE INTEL MARKS, INCLUDING THE VALIDITY OF INTEL'S
RIGHTS IN THE INTEL MARKS IN ANY COUNTRY, AND HEREBY EXPRESSLY
DISCLAIMS ANY AND ALL WARRANTIES THAT MIGHT OTHERWISE BE IMPLIED BY
APPLICABLE LAW.
8. RELATIONSHIP BETWEEN THE PARTIES. No agency, partnership, joint
venture, franchise, or employment relationship is created between Intel
and Licensee as a result of this Agreement. Neither party is authorized
to create any obligation, express or implied, on behalf of the other
party.
9. WAIVER: The failure of either party to enforce at any time the
provisions of this Agreement shall in no way be construed to be a
present or future waiver of such provisions, nor in any way affect the
ability of any party to enforce each and every provision thereafter.
10. INDEMNITY: Licensee agrees to indemnify, defend, and hold Intel
harmless from all loss, cost liability and expense incurred by Intel
and any of its subsidiaries or affiliated entities that arise out of a
claim concerning Licensee's manufacturing, use or sale of Licensed
Products incorporating the Intel Software except as specifically set
forth in the Software License and except where such claims are based
solely on Licensee's permitted use of the Licensed Marks. Intel agrees
to provide Licensee with prompt notice of any such claims and shall
provide Licensee with reasonable assistance (at Licensee's expense) in
defense or settlement of such claims as set forth in the Software
License.
11. LIMITATION OF LIABILITY: NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
12. TERM AND TERMINATION:
12.1 Term: This Agreement shall remain in effect until its
expiration or termination as provided herein
12.2 Expiration: This Agreement will expire in the event that
Licensee ceases to do business for any reason or in the event
the Software License is terminated for any reason.
12.3 Termination: Either party may terminate this Agreement with or
without cause upon thirty (30) days advance written notice.
Either party may terminate this Agreement for breach by the
other party upon written notice. Opportunity to cure the breach
may be given, but is not required under this Agreement.
12.4 Effect of Expiration or Termination: Upon any termination or
expiration of this Agreement, Licensee shall immediately cease
use of the Licensed Marks and Intel Marks,
19
<PAGE>
even if Licensee continues to rightfully distribute the Intel
Software as permitted in the Software License.12.5 Continuing
Obligations: Obligations of the parties under the provision of
paragraphs 1, 5, 6, 7, 8,10, 11, 12.4, 13, 14, 16 shall remain
in force notwithstanding the termination of expiration of this
Agreement.
13. ASSIGNMENT: This Agreement shall be binding upon and inure to the
benefit of the successor and permitted assignees of the parties hereto.
The rights granted to Licensee and Licensee's obligations hereunder are
personal. Licensee shall not assign this Agreement or any right or
obligation hereunder, whether in conjunction with a change in
ownership, merger, acquisition, the sale or transfer of all, or
substantially all or any part of Licensee' business or assets or
otherwise, either voluntarily, by operation of law, or otherwise,
without the prior written consent of Intel, which Intel may give or
withhold at its sole discretion. Any such purported assignment or
transfer shall be deemed a material breach of this Agreement and shall
be null and void.
14. CHOICE OF LAW AND JURISDICTION: The validity, construction and
performance of this Agreement shall be governed by the laws of the
State of Delaware and the United States of America, without reference
to conflict of laws principles. Any dispute arising out of this
Agreement shall be brought in, and the parties consent to personal and
exclusive jurisdiction of and venue in, the state and federal courts
within Santa Clara County, California.
15. EQUITABLE RELIEF: Licensee agrees that damages alone would be
insufficient to compensate Intel for a breach of this Agreement,
acknowledges that irreparable harm would result from a breach of this
Agreement, and consents to the entering of an order for injunctive
relief to prevent a breach or further breach or any further action
which could cause some loss or dilution of Intel's goodwill,
reputation, or rights in any Intel Marks, and the entering of an order
for specific performance to compel performance of any obligations under
this Agreement.
16. SEVERABILITY: If any provision of this Agreement is determined by a
court of competent jurisdiction to be invalid, illegal or
unenforceable, such determination shall not affect the validity of the
remaining provisions unless Intel determines at its discretion that the
court's determination causes this Agreement to fail in any of its
essential purposes.
17. ENTIRE AGREEMENT: This Agreement, together with the Software License,
constitutes the entire agreement between the parties concerning the
subject matter hereof and supersedes all proposals, oral or written,
all negotiations, conversation, and/or discussions between the parties
relating to this Agreement and all past courses of dealing or industry
customs. This Agreement may not be modified except in a wiring signed
by authorized representative of both parties.
18. NOTICES. Notices shall be given as set forth in the Software Agreement.
IN WITNESS WHEREOF, the parties by their duly authorized representatives, hereby
execute this Amendment to the Agreement.
INTEL CORPORATION THRUSTMASTER, INC.
- -------------------------------- --------------------------------
Signature Signature
- -------------------------------- --------------------------------
Printed Name Printed Name
20
<PAGE>
- -------------------------------- --------------------------------
Title Title
- -------------------------------- --------------------------------
Date Date
21
<PAGE>
EXHIBIT E
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON STOCK
ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT
REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE SALE OF SUCH SECURITIES
IS MADE PURSUANT TO SECURITIES AND EXCHANGE COMMISSION RULE 144.
WARRANT TO PURCHASE COMMON STOCK OF THRUSTMASTER, INC.
(SUBJECT TO ADJUSTMENT)
NO. ____
THIS CERTIFIES THAT, for value received, Intel Corporation, or its permitted
registered assigns ("HOLDER"), is entitled, subject to the terms and conditions
of this Warrant, at any time or from time to time after 5:00 p.m. PST December
4, 1998 (the "EFFECTIVE DATE"), and before 5:00 p.m. Pacific Time, five (5)
years from the Effective Date (the "EXPIRATION DATE"), to purchase from
Thrustmaster, Inc. an Oregon corporation (the "Company") Eighty-eight thousand
nine hundred and eighty eight (88988) shares of Warrant Stock (as defined in
Section 1 below) of the Company at a price per share of Four and thirteen
sixteenths dollars (US$4 13/16) (the "Purchase Price"). Both the number of
shares of Warrant Stock purchasable upon exercise of this Warrant and the
Purchase Price are subject to adjustment and change as provided herein. This
Warrant is issued pursuant to that certain Software Development and License
Agreement dated as of the Effective Date between the Company and Holder. This
Warrant replaces the warrant issued and delivered to Holder by the Company
effective as of May 28, 1998.
1. CERTAIN DEFINITIONS.
As used in this Warrant the following terms shall have the following respective
meanings: "FAIR MARKET VALUE" of a share of Warrant Stock as of a particular
date shall mean: (a) if traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Common Stock of the Company on such exchange or market over the 5
business days ending immediately prior to the applicable date of valuation; (b)
if actively traded over-the-counter, the Fair Market Value shall be deemed to be
the average of the closing bid prices over the 30-day period ending immediately
prior to the applicable date of valuation; and (c) if there is no active public
market, the Fair Market Value shall be the value thereof, as agreed upon by the
Company and the Holder; provided, however, that if the Company and the Holder
cannot agree on such value, such value shall be determined by an independent
valuation firm experienced in valuing businesses such as the Company and jointly
selected in good faith by the Company and the Holder (with the fees and expenses
of the valuation firm paid for by the Company.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
"REGISTERED HOLDER" shall mean any Holder in whose name this Warrant is
registered upon the books and records maintained by the Company.
22
<PAGE>
"WARRANT" as used herein, shall include this Warrant and any warrant delivered
in substitution or exchange therefor as provided herein.
"WARRANT STOCK" shall mean the Common Stock of the Company and any other
securities at any time receivable or issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1. Payment.
Subject to compliance with the terms and conditions of this Warrant and
applicable securities laws, this Warrant may be exercised, in whole or in part
at any time or from time to time, on or before the Expiration Date by the
delivery (including, without limitation, delivery by facsimile) of the form of
Notice of Exercise attached hereto as EXHIBIT 1 (the "Notice of Exercise"), duly
executed by the Holder, to the Company, and as soon as practicable after such
date, surrendering (a) this Warrant, and (b) payment, (i) in cash (by check) or
by wire transfer, (ii) by cancellation by the Holder of indebtedness of the
Company to the Holder; or (iii) by a combination of (i) and (ii), of an amount
equal to the product obtained by multiplying the number of shares of Common
Stock being purchased upon such exercise by the then effective Purchase Price
(the "Exercise Amount"), except that if Holder is subject to HSR Act
Restrictions (as defined in Section 2.5 below), the Exercise Amount shall be
paid to the Company within five (5) business days of the termination of all HSR
Act Restrictions.
2.2. Net Issue Exercise.
In lieu of the payment methods set forth in Section 2.1(b) above, the Holder may
elect to exchange all or some of the Warrant for shares of Warrant Stock equal
to the value of the amount of the Warrant being exchanged on the date of
exchange. If Holder elects to exchange this Warrant as provided in this Section
2.2, Holder shall tender to the Company the Warrant for the amount being
exchanged, along with written notice of Holder's election to exchange some or
all of the Warrant, and the Company shall issue to Holder the number of shares
of the Warrant Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued to Holder; Y = the
number of shares of Warrant Stock purchasable under the amount of the Warrant
being exchanged; A = the Fair Market Value of one share of the Company's Warrant
Stock; and B = the Purchase Price. All references herein to an "exercise" of the
Warrant shall include an exchange pursuant to this Section 2.2.
2.3. "Easy Sale" Exercise.
In lieu of the payment methods set forth in Section 2.1(b) above, when permitted
by law and applicable regulations (including Nasdaq and NASD rules), the Holder
may pay the Purchase Price through a "same day sale" commitment from the Holder,
whereby the Holder irrevocably elects to exercise this Warrant and to sell a
portion of the Shares so purchased to pay for the Purchase Price and the Holder
commits upon sale of such Shares to forward the Purchase Price directly to the
Company.
2.4. Stock Certificates; Fractional Shares.
As soon as practicable on or after such date, the Company shall issue and
deliver to the person or persons entitled to receive the same a certificate or
certificates for the number of whole shares of Warrant Stock issuable upon such
exercise, together with cash in lieu of any fraction of a share equal to such
fraction of the current Fair Market Value of one whole share of Warrant Stock as
of the date of exercise of this Warrant. No fractional shares or scrip
representing fractional shares shall be issued upon an exercise of this Warrant.
23
<PAGE>
2.5. HSR Act.
The Company hereby acknowledges that exercise of this Warrant by Holder may
subject the Company and/or the Holder to the filing requirements of the HSR Act
and that Holder may be prevented from exercising this Warrant until the
expiration or early termination of all waiting periods imposed by the HSR Act
("HSR Act Restrictions"). If on or before the Expiration Date Holder has sent
the Notice of Exercise to Company and Holder has not been able to complete the
exercise of this Warrant prior to the Expiration Date because of HSR Act
Restrictions, the Holder shall be entitled to complete the process of exercising
this Warrant in accordance with the procedures contained herein notwithstanding
the fact that completion of the exercise of this Warrant would take place after
the Expiration Date or the completion of the IP0.
2.6. Partial Exercise; Effective Date of Exercise.
In case of any partial exercise of this Warrant, the Company shall cancel this
Warrant upon surrender hereof and shall execute and deliver a new Warrant of
like tenor and date for the balance of the shares of Warrant Stock purchasable
hereunder. This Warrant shall be deemed to have been exercised immediately prior
to the close of business on the date of its surrender for exercise as provided
above.
3. VALID ISSUANCE: TAXES.
All shares of Warrant Stock issued upon the exercise of this Warrant shall be
validly issued, fully paid and non-assessable, and the Company shall pay all
taxes and other governmental charges that may be imposed in respect of the issue
or delivery thereof.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES.
The number of shares of Warrant Stock issuable upon exercise of this Warrant (or
any shares of stock or other securities or property receivable or issuable upon
exercise of this Warrant) and the Purchase Price are subject to adjustment upon
occurrence of the following events:
4.1. Adjustment for Stock Splits, Stock Subdivisions or
Combinations of Shares. The Purchase Price of this Warrant shall be
proportionally decreased or increased (as applicable) and the number of shares
of Warrant Stock issuable upon exercise of this Warrant (or any shares of stock
or other securities at the time issuable upon exercise of this Warrant) shall be
proportionally increased or decreased (as applicable) to reflect any stock split
or subdivision, or combination or reverse stock split, respectively, of the
Company's Warrant Stock.
4.2 Adjustment for Dividends or Distributions of Stock or Other
Securities or Property.
In case the Company shall make or issue, or shall fix a record date for the
determination of eligible holders entitled to receive, a dividend or other
distribution with respect to the Warrant Stock (or any shares of stock or other
securities at the time issuable upon exercise of the Warrant) payable in (a)
securities of the Company or (b) assets (excluding cash dividends paid or
payable solely out of retained earnings), then, in each such case, the Holder of
this Warrant on exercise hereof at any time after the consummation, effective
date or record date of such dividend or other distribution, shall receive, in
addition to the shares of Warrant Stock (or such other stock or securities)
issuable on such exercise prior to such date, and without the payment of
additional consideration therefor, the securities or such other assets of the
Company to which such Holder would have been entitled upon such date if such
Holder had exercised this Warrant on the date hereof and had thereafter, during
the period from the date hereof to and including the date of such exercise,
retained such shares and/or all other additional stock available by it as
aforesaid during such period giving effect to all adjustments called for by this
Section 4.
4.3. Reclassification.
If the Company, by reclassification of securities or otherwise, shall change any
of the securities as to which purchase rights under this Warrant exist into the
same or a different number of securities of any other class or classes, this
Warrant shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable as the result of such change with
24
<PAGE>
respect to the securities that were subject to the purchase rights under this
Warrant immediately prior to such reclassification or other change and the
Purchase Price therefore shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.
4.4. Adjustment for Capital Reorganization, Merger or Consolidation.
In case of any capital reorganization of the capital stock of the Company (other
than a combination, reclassification, exchange or subdivision of shares
otherwise provided for herein), or any merger or consolidation of the Company
with or into another corporation, or the sale of all or substantially all the
assets of the Company then, and in each such case, as a part of such
reorganization, merger, consolidation, sale or transfer, lawful provision shall
be made so that the Holder of this Warrant shall thereafter be entitled to
receive upon exercise of this Warrant, during the period specified herein and
upon payment of the Purchase Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 4. The foregoing provisions of this Section 4.4 shall similarly
apply to successive reorganizations, consolidations, mergers, sales and
transfers and to the stock or securities of any other corporation that are at
the time receivable upon the exercise of this Warrant.
5. CERTIFICATE AS TO ADJUSTMENTS.
In each case of any adjustment in the Purchase Price, or number or type of
shares issuable upon exercise of this Warrant, the Company shall promptly send a
certificate to the Holder detailing the computation of the adjustment.
6. LOSS OR MUTILATION.
Upon receipt of evidence reasonably satisfactory to the Company of the ownership
of and the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to it, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor as the lost, stolen, destroyed or mutilated Warrant.
7. RESERVATION OF COMMON STOCK.
The Company hereby covenants that at all times there shall be reserved for
issuance and delivery upon exercise of this Warrant such number of shares of
Common Stock or other shares of capital stock of the Company as are from time to
time issuable upon exercise of this Warrant and, if and when necessary, will
take all steps necessary to amend its charter documents to provide sufficient
reserves of shares of Warrant Stock. All such shares shall be duly authorized,
and when issued upon such exercise, shall be validly issued, fully paid and
non-assessable, free and clear of all liens and encumbrances, except
encumbrances or restrictions arising under federal or state securities laws.
8. TRANSFER AND EXCHANGE.
Subject to the terms and conditions of this Warrant and compliance with all
applicable securities laws, this Warrant and all rights hereunder may be
transferred to any Registered Holder parent, subsidiary or affiliate, in whole
or in part, upon notice to the Company and surrender of this Warrant and the
payment of any necessary transfer tax or other governmental charge imposed upon
such transfer.
9. RESTRICTIONS ON TRANSFER.
The Holder, by acceptance hereof, agrees that, absent an effective registration
statement filed
25
<PAGE>
with the SEC under the Securities Act of 1933, as amended (the "1933 Act"),
covering the disposition or sale of this Warrant or the Warrant Stock issued
or issuable upon exercise hereof and registration or qualification under
applicable state securities laws, such Holder will not sell, transfer,
pledge, or hypothecate any or all such Warrants or Warrant Stock unless
either (i) the Company has received an opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that such
registration is not required in connection with such disposition or (ii) the
sale of such securities is made pursuant to SEC Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS.
By acceptance of this Warrant, the holder hereby represents, warrants and
covenants that any shares of stock purchased upon exercise of this Warrant or
acquired upon conversion thereof shall be acquired for investment only and not
with a view to, or for sale in connection with, any distribution thereof; that
the Holder is able to bear the economic risk of holding such shares as may be
acquired pursuant to the exercise of this Warrant for an indefinite period; that
the Holder understands that the shares of stock acquired pursuant to the
exercise of this Warrant or acquired upon conversion thereof will not be
registered under the 1933 Act and will be "restricted securities" within the
meaning of Rule 144 under the 1933 Act; and that all stock certificates
representing shares of stock issued to the Holder upon exercise of this Warrant
or upon conversion of such shares may have affixed thereto an appropriate legend
reflecting such restricted nature.
11. NO RIGHTS OR LIABILITIES AS STOCKHOLDER.
This Warrant shall not entitle the Holder to any voting rights or other rights
as a stockholder of the Company.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Holder that the statements in the
following paragraphs of this Section 12 are all true and correct:
12.1. Organization, Good Standing and Qualification.
The Company is a corporation duly organized, validly existing and in good
standing under, and by virtue of, the laws of the State of Oregon and has all
requisite corporate power and authority to own its properties and assets and to
carry on its business as now conducted and as presently proposed to be
conducted. The Company is qualified to do business as a foreign corporation in
each jurisdiction where failure to be so qualified would have a material adverse
effect on its financial condition, business, prospects or operations.
12.2. Due Authorization; Consents.
All corporate action on the part of the Company, its officers, directors and
shareholders necessary for (a) the authorization, execution and delivery of, and
the performance of all obligations of the Company under this Warrant, and (b)
the authorization, issuance, reservation for issuance and delivery of all of the
equity securities issuable upon exercise of this Warrant (and, if applicable,
the Common Stock issuable upon conversion thereof). This Warrant constitutes a
valid and binding obligation of the Company enforceable in accordance with its
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
insolvency, moratorium, reorganization and similar laws affecting creditors'
rights generally and to general equitable principles. All consents, approvals
and authorizations of, and registrations, qualifications and filings with, any
federal or state governmental agency, authority or body, or any third party,
required in connection with the execution, delivery and performance of this
Warrant and the consummation of the transactions contemplated hereby and thereby
have been obtained.
12.3. Valid Issuance of Stock.
The outstanding shares of the capital stock of Company are duly and validly
issued, fully paid and non-assessable.
26
<PAGE>
12.4. SEC Reports; Financial Statements.
The Company has duly filed with the SEC the Company's annual report on Form 10-K
for the year ended December 31, 1997, and its quarterly reports on Form 10-Q for
the quarter ended March 31, 1998, (collectively, the "Company SEC Reports"). As
of their respective filing dates, the Company SEC Reports complied in all
material respects with the requirements of the Securities Exchange Act of 1934,
as amended, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
subsequently filed document with the SEC. Each of the consolidated financial
statements (including, in each case, any related notes) contained in the Company
SEC Reports complied as to form in all material respects with the applicable
published rules and regulations of the SEC with respect thereto, was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
to such financial statements or, in the case of unaudited statements, as
permitted for by Form 10-Q) and presented fairly, in all material respects, the
consolidated financial position of the Company and its subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements are subject to normal and recurring year-end adjustments which are
not expected to be material in amount.
12.5. Governmental Consents.
All consents, approvals, orders, authorizations or registrations,
qualifications, designations, declarations or filings with any US., federal or
state governmental authority on the part of Company required in connection with
the consummation of the transactions contemplated herein shall have been
obtained prior to and be effective as of the Effective Date.
12.6. Disclosure.
No representation or warranty by the Company in this Warrant contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances in which they are made,
not misleading.
13. NOTICES.
All notices and other communications from the Company to the Holder shall be
given in writing via certified mail, return receipt requested, hand delivery or
overnight delivery to 2200 Mission College Boulevard, Mail Stop SC4-210, Santa
Clara, California 95052, Attention: Treasurer.
14. LAW GOVERNING.
This Warrant shall be construed and enforced in accordance with, and governed
by, the laws of the State of Oregon.
15. NO IMPAIRMENT.
The Company will not, by amendment of its Articles of Incorporation or bylaws,
or through reorganization, consolidation, merger, dissolution, issue or sale of
securities, sale of assets or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant.
16. NOTICES OF RECORD DATE.
In case (a) the Company shall take a record of the holders of its Warrant Stock,
for the purpose of entitling them to receive any dividend or other distribution,
or any right to subscribe for or purchase any shares of stock of any class or
any other securities or to receive any other right; (b) of any consolidation,
merger or reorganization of the Company, any reclassification of the capital
stock of the Company, or any conveyance of all or substantially all of the
assets of the Company
27
<PAGE>
to another corporation in which holders of the Company's stock are to receive
stock, securities or property of another corporation; (c) of any voluntary
dissolution, liquidation or winding-up of the Company; or (d) of any
redemption or conversion of all outstanding Common Stock or Warrant Stock;
then, and in each such case, the Company will mail or cause to be mailed to
the Registered Holder of this Warrant a notice specifying, as the case may
be, (i) the date on which a record is to be taken for the purpose of such
dividend, distribution or right, or (ii) the date on which such transaction
or event is to take place, and the time, if any is to be fixed, as of which
the holders of record of Warrant Stock, shall be entitled to exchange their
shares of Warrant Stock for securities or other property deliverable upon
such event or transaction. Such notice shall be delivered at least thirty
(30) days prior to the date therein specified.
17. SEVERABILITY.
If any term, provision, covenant or restriction of this Warrant is held by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
18. INFORMATION RIGHTS.
The Company shall deliver to each holder of this Warrant or any securities
issued (directly or indirectly) upon exercise hereof, upon request, copies of
the Company's reports on Forms 10-K, 10-Q, and 8-K and Annual Reports to
Shareholders promptly after such documents are filed with the SEC.
19. NO INCONSISTENT AGREEMENTS.
The Company will not on or after the date of this Warrant enter into any
agreement with respect to its securities which is inconsistent with the rights
granted to the Holders of this Warrant or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to holders of the
Company's securities under any other agreements, except rights that have been
waived.
20. SATURDAYS, SUNDAYS AND HOLIDAYS.
If the Expiration Date falls on a Saturday, Sunday or legal holiday, the
Expiration Date shall automatically be extended until 5:00 p.m. the next
business day.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of the
Effective Date.
- ----------------------------------- -----------------------------------------
INTEL CORPORATION THRUSTMASTER, INC.
By: By:
---------------------------- -----------------------------------
- ------------------------------- --------------------------------------
Printed Name Printed Name
- ------------------------------- --------------------------------------
Title Title
- ----------------------------------- -----------------------------------------
SIGNATURE PAGE TO WARRANT
29
<PAGE>
EXHIBIT F
INTEL SOFTWARE LICENSE AGREEMENT (FINAL, SINGLE USER)
IMPORTANT - READ BEFORE COPYING, INSTALLING OR USING.
DO NOT USE OR LOAD THIS SOFTWARE AND ANY ASSOCIATED MATERIALS (COLLECTIVELY, THE
"SOFTWARE") UNTIL YOU HAVE CAREFULLY READ THE FOLLOWING TERMS AND CONDITIONS. BY
LOADING OR USING THE SOFTWARE, YOU AGREE TO THE TERMS OF THIS AGREEMENT. IF YOU
DO NOT WISH TO SO AGREE, DO NOT INSTALL OR USE THE SOFTWARE.
LICENSE. You may copy the Software onto a single computer for your personal,
noncommercial use, and you may make one back-up copy of the Software, subject to
these conditions:
1. You may not copy, modify, rent, sell, distribute or transfer any part of
the Software except as provided in this Agreement, and you agree to
prevent unauthorized copying of the Software.
2. You may not reverse engineer, decompile, or disassemble the Software.
3. You may not sublicense or permit simultaneous use of the Software by more
than one user.
4. The Software may include portions offered on terms in addition to those
set out here, as set out in a license accompanying those portions.
OWNERSHIP OF SOFTWARE AND COPYRIGHTS. Title to all copies of the Software
remains with Intel or its suppliers. The Software is copyrighted and protected
by the laws of the United States and other countries, and international treaty
provisions. You may not remove any copyright notices from the Software. Intel
may make changes to the Software, or to items referenced therein, at any time
without notice, but is not obligated to support or update the Software. Except
as otherwise expressly provided, Intel grants no express or implied right under
Intel patents, copyrights, trademarks, or other intellectual property rights.
You may transfer the Software only if the recipient agrees to be fully bound by
these terms and if you retain no copies of the Software.
LIMITED MEDIA WARRANTY. If the Software has been delivered by Intel on physical
media, Intel warrants the media to be free from material physical defects for a
period of ninety days after delivery by Intel. If such a defect is found, return
the media to Intel for replacement or alternate delivery of the Software as
Intel may select.
EXCLUSION OF OTHER WARRANTIES. EXCEPT AS PROVIDED ABOVE, THE SOFTWARE IS
PROVIDED "AS IS" WITHOUT ANY EXPRESS OR IMPLIED WARRANTY OF ANY KIND INCLUDING
WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT, OR FITNESS FOR A PARTICULAR
PURPOSE. Intel does not warrant or assume responsibility for the accuracy or
completeness of any information, text, graphics, links or other items contained
within the Software.
LIMITATION OF LIABILITY. IN NO EVENT SHALL INTEL OR ITS SUPPLIERS BE LIABLE FOR
ANY DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, LOST PROFITS, BUSINESS
INTERRUPTION, OR LOST INFORMATION) ARISING OUT OF THE USE OF OR INABILITY TO USE
THE SOFTWARE, EVEN IF INTEL HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
SOME JURISDICTIONS PROHIBIT EXCLUSION OR LIMITATION OF LIABILITY FOR IMPLIED
WARRANTIES OR CONSEQUENTIAL OR INCIDENTAL DAMAGES, SO THE ABOVE LIMITATION MAY
NOT APPLY TO YOU. YOU MAY ALSO HAVE OTHER LEGAL RIGHTS THAT VARY FROM
JURISDICTION TO JURISDICTION.
TERMINATION OF THIS AGREEMENT. Intel may terminate this Agreement at any time if
you violate its terms. Upon termination, you will immediately destroy the
Software or return all copies of the Software to Intel.
APPLICABLE LAWS. Claims arising under this Agreement shall be governed by the
laws of California, excluding its principles of conflict of laws and the United
Nations Convention on Contracts for the Sale of Goods. You may not export the
Software in violation of applicable export laws and regulations. Intel is not
obligated under any other agreements unless they are in writing and signed by an
authorized representative of Intel.
GOVERNMENT RESTRICTED RIGHTS. The Software is provided with "RESTRICTED RIGHTS."
Use, duplication, or disclosure by the Government is subject to restrictions as
set forth in FAR52.227-14 and DFAR252.227-7013 ET SEQ. or its successor. Use of
the Software by the Government constitutes acknowledgment of Intel's proprietary
rights therein. Contractor or Manufacturer is Intel Corporation, 2200 Mission
College Blvd., Santa Clara, CA 95052.
30
<PAGE>
EXHIBIT G
THRUSTMASTER MANAGEMENT OF INTEL SOFTWARE SOURCE CODE
1.0 Thrustmaster manager responsible for Intel Software Source Code: Loren
Winzeler
2.0 Location of Intel Software Source Code: source servers; hard media
locked in fire safe (Corporate HQ)
31
<PAGE>
EXHIBIT H
ENSURING COMPATABILITY BETWEEN INTEL
MULTI-POINT AUDIO DERIVED APPLICATIONS
The Intel Multi-point Audio SDK can be integrated with many types of
applications to provide multi-participant audio conferencing. Follow these
directions to ensure that the applications you build are compatible with each
other as well as all other applications that have been built using Intel
Multi-point Audio.
FOR INSTALL /UNINSTALL COMPATIBILITY
IF YOU ARE USING THE INTEL MULTI-POINT AUDIO SDK AS RELEASED
All applications using this release of the Intel Multi-point Audio SDK
unmodified (no source level changes) should follow these steps to ensure that
they do not conflict with other applications also using this SDK.
1) File Locations for Intel Multi-point Audio core files
Files that implement Intel Multi-point Audio core functionality must be
placed in a well known directory common to all applications that use it.
Because files in this directory are shared by multiple applications,
standard MS Windows shared file reference counting should be used when
installing and uninstalling these files. Also, check file creation times to
ensure that you never copy over any of the core files with an older
version.
The common shared directory for this release of the Intel Multi-point Audio
SDK is:
< Program Files > \Common Files\Intel\Multi-Point
Audio 1.6
Note: < Program Files > is a variable location
maintained by Windows system and is not always C:\Program Files
The list of core files can be found in the section below entitled INTEL
MULTI-POINT AUDIO CORE FILES.
2) Registry Settings
Registry settings required to configure Intel Multi-point Audio are unique
to each application that uses the SDK. To ensure that applications
configurations do not change or conflict with each other, Multi-point Audio
registry subkeys and entries are placed under a registry key unique to that
application. This is accomplished with the following three steps.
a) The application writer determines an application identifier to be used
to distinguish this application's registry entries. Because this
identifier is used as portion of a registry key, it may contain
forward-slash characters ("\") to delimit subkeys. We recommend that
the identifier contain a company name, a product name, and a version
number, i.e "MyCompany\ThisProduct\v1.0". This name can contain single
but not multiple embedded spaces in the name. Ie "My Company "is okay,
but "My Company" is not.
b) Write your application setup software to place Intel Multi-point Audio
required registry entries in the following registry location:
32
<PAGE>
HKEY_LOCAL_MACHINE\Software\Intel\ < application id >
Or, to use our example,
HKEY_LOCAL_MACHINE\Software\Intel\MyCompany\ThisProduct\v1.0\...
Note: to editor we might want a reference to the "installation design doc" part
of the document
Where all the current registry entries are listed.
c) In your application, call the MPA Init() method passing your
identifier as the parameter. This will allow the Intel Multi-point
Audio subsystem to find the correct configuration values for your
application. The following code fragment illustrates this.
//Create an instance of the MultiPointAudio control
HRESULT hr = m_spMpa.CoCreateInstance(CLSID_MpaCtrl);
...
< other COM related initialization >
...
m_spMpa- > Init(_bstr_t("MyCompany\ThisProduct\v1.0"));
IF YOU HAVE MADE SOURCE CODE CHANGES TO INTEL MULTI-POINT AUDIO
Integrators that have made source code level changes to the Intel Multi-point
Audio subsystem need to ensure that any changes they have made do not
inadvertently affect the operation of applications using the original,
unmodified Multi-point Audio SDK. Following these steps will ensure
compatibility with existing and future applications using Intel Multi-point
Audio .
1. Change the Class ID Global Unique Identifiers (GUIDs) for Multi-point Audio
implemented COM components. Also, change Interface ID GUIDs for any
interfaces that have been modified. See instructions for changing
Multi-point Audio GUIDs in section < TBD > .
2. Define a new common file location for Intel Multi-point Audio core files.
To ensure that this location is unlikely to be used by other Intel
Multi-point Audio integrators, we recommend using your company name and an
SDK version number as part of the location directory path. For example:
3. < Program Files > \Common Files\MyCompany\Multi-Point Audio 1.6.1
4. Ensure that applications using this variation of Multi-point Audio follow
the same compatibility rules defined above for Multi-point Audio SDK
integrators. Core files should be placed in the newly defined common
directory, and all required registry entries should be unique to the
application.
FOR RUNTINE COMPATABILITY
If you want to ensure that your application will execute and run correctly at
the same time other Multi-point Audio applications are running, follow these
steps.
1. ServerPort usage - When your application hosts a conference, ensure that
the ServerPort property is set to a non default value (default is 24386.)
It is safest to set the ServerPort
33
<PAGE>
property to zero (0), which will cause a unique port ID value to be
assigned. You will need to ensure that all clients of this conference are
using the same ServerPort property value as the host. This may be done by
sending to the other participants the actual ServerPort value read after
your application receives the HostConferenceAccepted event. Applications
way also reserve a port id for their exclusive use with the Internet
Assigned Numbers Authority (http://www.iana.org/numbers.html#P) and use
this as a fixed ServerPort value to be used on both host and client
applications.
2. ConferenceListenPort usage - When your application hosts a conference,
ensure that the ConferenceListenPort property is set to a non default value
(default is 1720.) It is best to set the ConferenceListenPort property to
zero (0), which will cause a unique port ID value to be assigned. Unlike
the ServerPort property value, there is no need to pass this value from the
host to clients. Multi-point Audio passes it internally.
Setting the ConferenceListenPort property to the default values allows the
Multi-point Audio subsystem to inter-operate with H.323 based internet
phone applications.
INTEL MULTI-POINT AUDIO CORE FILES:
Audmsp32.dll
MPA.dll
Ppm.dll
SM.dll
api.dll
arscli.dll
autoreg.dll
avserp32.dll
callcont.dll
cclock.dll
confmgr.dll
cstrain.dll
dr.dll
gki.dll
h245.dll
h245ws.dll
icas.exe
irrcm.dll
isdm2.dll
isreghlp.dll
mallmsp.dll
marsrdr.dll
mixmsp.dll
mpap.dll
mpas.dll
msm.dll
netmmerr.dll
ossapi.dll
ossdmem.dll
rci.dll
refobj.dll
sessnmgr.dll
soedper.dll
strmsp.dll
vcrmsp32.dll
34
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
CenterSpan Communications Corp.:
We consent to incorporation by reference in the registration statement (No.
33-57521) on Form S-8 of CenterSpan Communications Corp. and subsidiaries of our
report dated February 19, 2000, with respect to the consolidated statements of
operations, shareholders' equity and cash flows of CenterSpan Communications
Corp. and subsidiaries for the year ended December 31, 1999, which report
appears in the December 31, 1999 Form 10-K of CenterSpan Communications Corp.
dated on or about March 27, 2000.
/s/ KPMG LLP
Portland, Oregon
March 27, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 333-40323, 333-57521, and
333-93082) and Form S-3 (No. 333-73333 and 333-86825) of Centerspan
Communications Corporation and subsidiaries (fka Thrustmaster, Inc.)
of our report dated January 25, 1999 relating to the financial
statements and financial statement schedules, which appears in this
Form 10-K.
PricewaterhouseCoopers LLP
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,749
<SECURITIES> 0
<RECEIVABLES> 104
<ALLOWANCES> 100
<INVENTORY> 0
<CURRENT-ASSETS> 18,932
<PP&E> 1,001
<DEPRECIATION> 601
<TOTAL-ASSETS> 19,357
<CURRENT-LIABILITIES> 3,397
<BONDS> 0
0
0
<COMMON> 31,736
<OTHER-SE> (19,306)
<TOTAL-LIABILITY-AND-EQUITY> 19,357
<SALES> 787
<TOTAL-REVENUES> 787
<CGS> 569
<TOTAL-COSTS> 569
<OTHER-EXPENSES> 5,756
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,108)
<INCOME-TAX> 4,532
<INCOME-CONTINUING> (10,640)
<DISCONTINUED> (5,201)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,841)
<EPS-BASIC> (3.14)
<EPS-DILUTED> (3.14)
</TABLE>
