UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to _____________
Commission file number 0-26074
SPYGLASS, INC.
(Exact name of registrant as specified in its charter)
Delaware 37-1258139
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1240 E. Diehl Road, 4th Floor, Naperville, IL 60563 (630) 505-1010
(Address of principal executive offices, zip code, registrant's
telephone number, including area code)
_________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
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 report)
and (2) has been subject to such filing requirements for the past 90
days. Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 10, 1999
Common Stock (par value $.01 per share) 16,389,737
<Page 2>
Spyglass, Inc.
Form 10-Q
Index
Page No.
Part I. Financial Information
Item 1. Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 1998
Six Months Ended March 31, 1999 and 1998 3
Consolidated Balance Sheets
March 31, 1999 and September 30, 1998 4
Consolidated Statement of Changes in
Stockholders' Equity
Six Months Ended March 31, 1999 5
Consolidated Statements of Cash Flows
Six Months Ended March 31, 1999 and 1998 6
Notes to the Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
<Page 3>
SPYGLASS, INC.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
(In thousands, except per March 31, March 31,
share amounts 1999 1998 1999 1998
----------------------------------------------------------------------
<C> <C> <C> <C> <C>
Net revenues:
Internet technology $ 4,252 $ 2,881 $ 6,117 $ 5,471
Service 2,047 2,125 4,705 3,789
------ -------- -------- --------
Total net revenues 6,299 5,006 10,822 9,260
Cost of revenues:
Internet technology 460 467 771 798
Service 1,176 644 2,551 1,189
------ -------- -------- --------
Total cost of revenues 1,636 1,111 3,322 1,987
------ -------- -------- --------
Gross profit 4,663 3,895 7,500 7,273
Operating expenses and other:
Sales and marketing 2,131 2,264 4,305 4,559
Research and development 1,824 2,836 3,645 5,954
General and administrative 960 1,621 2,332 3,080
One-time acquisition costs - - - 496
------ -------- -------- --------
Total operating expenses
and other 4,915 6,721 10,282 14,089
------ -------- -------- --------
Loss from operations (252) (2,826) (2,782) (6,816)
Other income, net 366 297 680 639
------ -------- -------- --------
Income (loss) before income
taxes 114 (2,529) (2,102) (6,177)
Income tax provision (benefit) - - - -
------ -------- -------- --------
Net income (loss) $ 114 $ (2,529) $ (2,102) $ (6,177)
====== ======== ======== ========
Net income (loss) per common
share-basic $ 0.01 $ (0.19) $ (0.14) $ (0.47)
Net income (loss) per common
share-diluted $ 0.01 $ (0.19) $ (0.14) $ (0.47)
Weighted average number of
common shares outstanding-
basic 14,901 13,124 14,722 13,124
====== ====== ====== ======
Weighted average number of
common shares outstanding-
diluted 16,255 13,124 14,722 13,124
====== ====== ====== ======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
3
<Page 4>
SPYGLASS, INC.
Consolidated Balance Sheets
<TABLE>
(Unaudited)
March 31, September 30,
(In thousands) 1999 1998
-----------------------------------------------------------------
<C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,223 $ 22,655
Accounts receivable, net of allowance
for doubtful accounts of $412 and
$429,respectively 6,715 4,704
Unbilled accounts receivable 1,195 902
Prepaid expenses and other current
assets 2,961 2,461
-------- --------
Total current assets 39,094 30,722
Properties and equipment, net 3,040 3,585
Other assets 122 268
-------- --------
Total Assets $ 42,256 $ 34,575
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,216 $ 1,493
Royalties payable 577 541
Deferred revenues 1,038 786
Accrued compensation and related
benefits 1,306 1,466
Accrued expenses and other liabilities 196 163
-------- -------
Total current liabilities 4,333 4,449
Long-term deferred revenues 316 50
-------- -------
Total liabilities 4,649 4,499
-------- -------
Stockholders' equity:
Preferred stock, $.01 par value,
2,000,000 shares authorized,
none issued - -
Common stock, $.01 par value,
50,000,000 shares authorized
15,089,367 and 13,944,433 shares
issued and 15,079,653 and 13,934,719
shares outstanding, respectively 151 139
Additional paid-in capital 54,008 43,886
Accumulated deficit (15,459) (13,357)
Treasury stock at cost, 9,714 shares (55) (55)
Unamortized value of restricted stock
issued (1,038) (537)
-------- ---------
Total stockholders' equity 37,607 30,076
-------- ---------
Total Liabilities and Stockholders'
Equity $ 42,256 $ 34,575
======== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
4
<Page 5>
SPYGLASS, INC.
Consolidated Statement of Changes in Stockholders' Equity
<TABLE> Unamortized
Additional Treasury Value of
(In thousands, except Common Stock Paid-in Accumulated Common Stock Restricted
share amounts) Shares Amount Capital Deficit Shares Amount Stock Issued
------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30,1998 13,934,719 $ 139 $ 43,886 $ (13,357) 9,714 $ (55) $ (537)
Sale of common stock to
General Instrument 700,000 7 7,385
Exercise of stock options 371,637 4 1,940
Exercise of employee stock
purchase plan stock options 22,411 - 214
Issuance of restricted stock 60,600 1 583 (583)
Amortization of deferred
compensation relating to
issuance of restricted stock 82
Net loss (2,102)
---------- ----- -------- --------- ----- ----- --------
Balance at March 31, 1999 15,089,367 $ 151 $ 54,008 $ (15,549) 9,714 $ (55) $ (1,038)
========== ===== ======== ========= ===== ===== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
5
<Page 6>
SPYGLASS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Six Months Ended March 31,
(In thousands) 1999 1998
----------------------------------------------------------------------
<C> <C> <C>
Cash flows from operating activities:
Net (loss) $ (2,102) $ (6,177)
Adjustments to reconcile net loss to net
cash used in oprating activities:
Depreciation 923 1,002
Amortization 296 604
Loss on disposal of fixed assets 12 -
Amortization of deferred compensation
related to issuance of restricted stock 82 176
Bad debt provision 175 278
Incentive stock option compensation - 15
Changes in operating assets and liabilities:
Accounts and long-term receivables (2,186) 447
Unbilled accounts receivable (293) -
Prepaid expenses, other current assets
and other assets (650) 67
Accounts payable (277) (349)
Royalties payable 36 -
Deferred revenues 518 (716)
Accrued compensation and related benefits (160) (407)
Accrued expenses and other liabilities 33 (52)
------- -------
Net cash used in operating activities (3,593) (5,112)
------- -------
Cash flows from investing activities:
Cash acquired in business combination - 574
Short-term investments, net activity - 4,929
Proceeds from sale of fixed assets 9 82
Capital expenditures (398) (248)
------- ------
Net cash provided by (used in) investing
activities (389) 5,337
------- ------
Cash flows from financing activities:
Proceeds from exercise of stock options 2,158 781
Sale of common stock to General Instrument 7,392 -
Purchase of treasury common stock - (55)
------- ------
Net cash provided by financing activities 9,550 726
------- ------
Net increase in cash and cash equivalents 5,568 951
Cash and cash equivalents at beginning of
perid 22,655 22,841
------- -------
Cash and cash equivalents at end of period $ 28,223 $ 23,792
======= =======
</TABLE>
See accompanying notes to the Consolidated Financial Statements
6
<Page 7>
Notes to the Consolidated Financial Statements
(Unaudited)
March 31, 1999
Note 1. Basis of Presentation
The accompanying financial statements have been prepared by
the Company in accordance with generally accepted accounting
principles, although certain information and footnote
disclosures normally included in the Company's audited annual
financial statements have been condensed or omitted. In the
opinion of management, the accompanying unaudited financial
statements include all adjustments (consisting only of normal
recurring items) necessary for a fair presentation of the
Company's financial position, results of operations and cash
flows at the dates and for the periods indicated. It is
suggested that these interim financial statements be read in
connection with the audited financial statements for the fiscal
years ended September 30, 1998, 1997 and 1996 which are included
in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998.
The results of operations for the three and six months
ended March 31, 1999 are not necessarily indicative of the
results of operations to be expected for the full fiscal year.
Note 2. Subsequent Event
On April 16, 1999, the Company acquired all of the issued
and outstanding capital stock of Navitel Communications, Inc.
("Navitel"). Navitel, located in Menlo Park, California, is in the
business of Internet telephony and software development focused on
Internet technology for non-PC devices. This transaction was
effected through the exchange of 1,148,520 shares of common stock of
the Company for all of the issued and outstanding capital stock of
Navitel. In addition, Navitel optionholders received equivalent
options for shares of Spyglass Common Stock in exchange for their
outstanding options for common stock of Navitel.
This transaction will be accounted for under the pooling of
interests method of accounting. Accordingly, the Company's
consolidated financial statements will be restated to include the
accounts and operations of Navitel for all periods prior to the
acquisition.
Note 3. Transactions with Microsoft Corporation
In March 1999, the Company and Microsoft Corporation
("Microsoft") entered into agreements under which the Company
licensed technology and will provide services over a three year
period to Microsoft to develop and integrate multiple Windows CE-
based applications for Internet device manufacturers that are
developing products utilizing the Windows CE operating system. The
agreements are expected to provide the Company with a minimum of $20
million in revenues over three years.
<Page 8>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Spyglass, Inc. ("Spyglass" or the "Company") was organized
as an Illinois corporation in February 1990 and reincorporated in
Delaware in May 1995. Spyglass entered the Internet market during
fiscal 1994 and, from fiscal 1994 through fiscal 1996, focused its
efforts on developing, marketing and distributing Internet client and
server technologies for incorporation into a variety of Internet-
based software products and services. Since fiscal 1997, the Company
has been focusing on the development, marketing and distribution of
its technologies and services to the non-PC Internet device
marketplace. In February 1998, Spyglass reorganized its business to
integrate its development, professional services and marketing
resources. This change has allowed Spyglass to target its tailored
solutions to the needs of the various vertical sectors within the
Internet device market.
Spyglass provides its customers with expertise, software and
professional services that enable them to rapidly develop cost-
effective Internet-enabled devices. Spyglass professional services
include custom engineering for defining, developing and delivering
complete, end-to-end project solutions. Spyglass solutions have been
integrated into a variety of products, including but not limited to
television set-top boxes, screen and cellular phones, televisions,
office equipment, medical devices and industrial controls. In
addition, several major corporations have deployed SurfWatch, a
leading content filtering software designed to block unwanted
material from the Internet.
In October 1998, General Instrument Corporation ("GI") acquired
700,000 shares of the Company's common stock for $7,392,000 and also
acquired warrants to purchase an additional 700,000 shares. The
warrants have exercise prices ranging from $13.20 to $14.78 per share
(subject to adjustment in certain circumstances), and become
exercisable on varying dates over a five-year period. In connection
with this investment, the Company and GI entered into a three-year
agreement under which the Company is developing and integrating new
Internet cable services and technologies for GI. This work is being
performed through a newly-formed subsidiary of the Company, in which
GI holds a 10% minority interest and which GI has an option to
purchase at fair market value under certain circumstances.
In March 1999, the Company and Microsoft Corporation
("Microsoft") entered into agreements under which the Company
licensed technology and will provide services over a three year
period to Microsoft to develop and integrate multiple Windows CE-
based applications for Internet device manufacturers that are
developing products utilizing the Windows CE operating system. The
agreements are expected to provide the Company with a minimum of $20
million in revenues over three years.
The Company licenses technology from a number of third-party
vendors for incorporation into the Company's products. As a result,
the Company pays royalties to the University of Illinois with respect
to licenses of Spyglass Device Mosaic, to RSA Data Security, Inc.
with respect to licenses of the Company's technologies containing
certain RSA code and to Sun Microsystems, Inc. with respect to
licenses of the Company's technologies containing certain Java code.
<Page 9>
These and other royalties are reflected in cost of Internet
technology revenues.
Quarter Ended March 31, 1999 Compared with Quarter Ended March 31,
1998
Internet technology revenues for the quarter ended March 31,
1999 increased $1,371,000 or 48%, to $4,252,000 from $2,881,000 for
the quarter ended March 31, 1998. This increase was due to an
increase in the dollar value of licensing contracts signed during the
quarter; specifically, one contract accounted for $1,500,000 of
Internet technology revenue for the quarter. In the quarter ended
March 31, 1999, certain customers licensed Spyglass technologies who
had previously been expected by Spyglass to execute license
agreements during the quarter ended December 31, 1998. However, due
to the many factors affecting the timing of potential customer
product development projects, management expects to continue to
experience difficulty in forecasting the timing of executing
licensing agreements which require large up-front license fee
commitments. The Company continually reviews its sales process with
the goal of shortening its sales cycle.
Service revenues for the quarter ended March 31, 1999, which
include both professional services revenues and revenues from
customer support agreements, decreased $78,000, or 4%, to $2,047,000
from $2,125,000 for the quarter ended March 31, 1998. This decrease
was the result of smaller service engagements at the beginning of
the quarter than in the previous period and new engagements signing
too late in the quarter ended March 31, 1999 to compensate for this
shortfall. The Company expects professional service revenues to
increase in absolute dollars, and as a percentage of total net
revenues, during the remainder of fiscal 1999 as compared to the
quarter ended March 31, 1999. Service revenues from customer support
agreements, as a percentage of total net revenues, are expected to
decline slightly during the same period as compared to the quarter
ended March 31, 1999.
Gross profit as a percentage of total net revenues was 74.0% for
the quarter ended March 31, 1999 compared to 77.8% for the quarter
ended March 31, 1998. This decline was due to the acceptance of
certain lower gross margin professional services engagements in order
to both further the development of long-term strategic relationships
and to increase overall utilization of services staff. This was
offset, in part, by higher gross margins realized on Internet
technology revenue due to lower licensing costs associated with those
revenues. Gross profit, as a percentage of total net revenues, is
expected to continue to be lower for the remainder of fiscal 1999
than in fiscal 1998 as lower margin service revenues are expected to
increase in proportion to total revenues. This trend, however, could
vary on a quarter to quarter basis as the quantity and value of
signed technology license agreements may vary from quarter to
quarter.
Sales and marketing expenses for the quarter ended March 31,
1999 decreased $133,000, or 6%, to $2,131,000 from $2,264,000 for the
quarter ended March 31, 1998 and decreased as a percentage of total
net revenues to 33.8% from 45.2%. Factors contributing to this
decrease included a reduction in compensation and personnel expenses
resulting from a reduction in sales and marketing staff as well as a
reduction in direct marketing costs.
<Page 10>
Research and development expenses for the quarter ended March
31, 1999 decreased $1,012,000, or 36%, to $1,824,000 from
$2,836,000 for the quarter ended March 31, 1998 and decreased as a
percentage of total net revenues to 29.0% from 56.7%. The decrease
was due primarily to a decrease in salary and related personnel
costs of $904,000 as a portion of the development engineering staff
was re-deployed into professional services roles, as reflected by
the increased cost of service revenues, and was also due to an
overall reduction in engineering staff. The Company anticipates
that its direct investment in research and development will
increase during the remainder of the year. The Company believes
that these increased investments, when combined with its retained
ownership of the engineering developments of its professional
service engineers, will provide sufficient funding of its research
and development activities for the remainder of fiscal 1999.
General and administrative expenses for the quarter ended March
31, 1999 decreased $661,000, or 41%, to $960,000 from $1,621,000 for
the quarter ended March 31, 1998 and decreased as a percentage of
total net revenues to 15.2% from 32.4%. This decrease is primarily a
result of a decrease in salary and related personnel costs of
$212,000 due to a decline in general and administrative headcount as
well as a reduction in bad debt expense of $100,000 and facility
related costs of $161,000.
The Company recorded no income tax benefit for the quarters
ended March 31, 1999 and 1998. The Company believes that it is
appropriate to defer recognition of potential tax benefits until such
time when its return to profitability can provide assurances that
these tax benefits will be realized.
Six Months Ended March 31, 1999 Compared with Six Months Ended March
31, 1998
Internet technology revenues for the six months ended March
31, 1999 increased $646,000 or 12%, to $6,117,000 compared to
$5,471,000 for the six months ended March 31, 1998. This increase
in Internet technology revenues was due primarily to an increase in
the dollar value of licensing contracts signed during fiscal 1999;
specifically, one contract represented $1,500,000 of Internet
technology revenue.
Service revenues for the six months ended March 31, 1999
increased $916,000, or 24%, to $4,705,000 compared to $3,789,000 for
the six months ended March 31, 1998. This increase was due to
management's focus on building an integrated development and service
organization that provides customized solutions to its customers
within the vertical sectors of the Internet device market. This
focus resulted in an increase in the number and dollar value of
professional services agreements.
Gross profit as a percentage of revenues was 69.3% for the six
months ended March 31, 1999 compared to 78.5% for the six months
ended March 31, 1998 due to a higher mix of service revenues and a
decline in service revenue gross margin. The cost of service
revenues increased, as a percentage of service revenues, to 54.2% for
the six months ended March 31, 1999 from 31.4% for the six months
ended March 31, 1998. This decline in service revenues gross profit
was primarily due to the acceptance of certain lower gross margin
<Page 11>
professional services engagements in order to both further the
development of long-term strategic relationships and to increase
overall utilization of services staff. This was offset, in part, by
higher gross margins realized on Internet technology revenues due to
lower licensing costs associated with those revenues.
Sales and marketing expenses for the six months ended March 31,
1999 decreased $254,000, or 6%, to $4,305,000 from $4,559,000 for the
six months ended March 31, 1998, and decreased as a percentage of
total net revenues to 39.8% from 49.2%. This decrease resulted
primarily from a reduction in compensation and personnel expenses
incurred as a result of a reduction in sales and marketing staff.
Research and development expenses for the six months ended
March 31, 1999 decreased $2,309,000, or 39%, to $3,645,000 from
$5,954,000 for the six months ended March 31, 1998 and decreased as
a percentage of total net revenues to 33.7% from 64.3%. The
decrease was due primarily to a decrease in salary costs and
related personnel expenses of $2,033,000 related to the increased
utilization of development engineers in a professional services
role, as reflected by the increased cost of service revenues, and
was also due to an overall reduction in engineering staff.
General and administrative expenses for the six months ended
March 31, 1999 decreased $748,000, or 24%, to $2,332,000 from
$3,080,000 for the six months ended March 31, 1998 and decreased as
a percentage of total net revenues to 21.5% from 33.3%. This
decrease was due to a $281,000 decrease in salary and related
personnel expenses due to a reduction in general and administrative
staff. In addition, general and administrative facility related
costs decreased by $191,000 due to a reduction in the Company's
facilities during this time period and bad debt expense decreased
by $103,000.
In connection with the acquisition of AllPen Software on
November 14, 1997, the Company recorded, in the first quarter of
1998, a charge to operating expenses of $496,000 or $0.04 per share-
basic for direct acquisition related costs. These costs consisted
primarily of professional fees.
The Company recorded no income tax benefit for the six months
ended March 31, 1999 and 1998. The Company believes that it is
appropriate to defer recognition of potential tax benefits until such
time when its return to profitability can provide assurances that
these tax benefits will be realized.
Liquidity and Capital Resources
As of March 31, 1999, the Company had no debt and had cash and
cash equivalents of $28,223,000 and working capital of $34,761,000.
The Company's operating activities used cash of $3,593,000 and
$5,112,000 for the six months ended March 31, 1999 and March 31,
1998, respectively. In October 1998, the Company received
$7,392,000 in cash from GI for the purchase by GI of 700,000 shares
of the Company's common stock.
The Company's net accounts receivable balance increased to
$6,715,000 at March 31, 1999 from $4,704,000 at September 30, 1998.
<Page 12>
This increase was primarily due to the timing of when new
technology licensing contracts were signed during the year as well
as the higher level of total net revenues in the current year
period.
The Company's capital expenditures totaled $398,000 and $248,000
for the six months ended March 31, 1999 and 1998, respectively. In
October 1998, the Company entered into an agreement with GI to form a
new digital cable software integration center. The formation of the
integration center will require the purchase of computer hardware and
software and office furniture. The Company estimates that such
expenditures will range from $250,000 to $425,000 during fiscal 1999.
The Company believes that its current cash and cash equivalents,
together with funds expected to be generated from operations, will be
sufficient to finance the Company's operations through at least the
twelve-month period ending March 31, 2000.
Future Operating Results
This Form 10-Q contains a number of forward-looking
statements. Any statements contained herein (including without
limitation statements to the effect that the Company or its
management "believes", "expects", "anticipates", "plans" and
similar expressions) that relate to future events or conditions
should be considered forward-looking statements. There are a
number of important factors that could cause the Company's actual
results to differ materially from those indicated by such forward-
looking statements. These factors include, without limitation,
those set forth below.
During fiscal 1997, the Company announced a new strategic
focus on the Internet device market. The Company is now focused on
the development, marketing and distribution of its technologies and
services to the non-PC Internet device marketplace. Because this
is a relatively new and undeveloped market, there can be no
assurance as to the extent of the demand for the Company's products
and services or the extent to which the Company will be successful
in penetrating this market.
The Company derived approximately 24% of its revenues for the
quarter ended March 31, 1999 from one customer. As the Internet
device market develops, the Company expects to continue to derive a
significant portion of its revenues from a relatively limited number
of customers. Although the Company expects that its reliance on any
particular customer will decline as the Internet device market
develops and its customer base expands, the failure of the Company to
enter into a sufficient number of licensing agreements or sustain
revenues from major customers during a particular period could have a
material adverse effect on the Company's future operating results.
The Company's future results of operations will also be
largely dependent upon a number of factors relating to the further
development and acceptance of the Internet as a commercial market.
In particular, commercial use of the Internet continues to be
constrained by the need for reliable processes such as security
measures for electronic commerce as well as the need for regularly
available customer support. In addition, the market for Internet
software products is characterized by rapidly changing technology,
evolving industry standards and customer demands, and frequent
<Page 13>
product introductions and enhancements, which make it difficult to
predict whether any initial commercial acceptance of the Company's
products can be sustained over a period of time.
The market for Internet technologies and services is extremely
competitive, and competition is likely to increase in the future.
The Company currently faces competition from other Internet device
technology vendors and service providers such as Oracle, Sun
Microsystems, Phone.com, Microsoft, on-line service companies,
Internet access providers and networking software companies.
Additionally, the Company considers a significant source of
competition for its Internet technologies and professional services
to be the prospect company's internal resources.
The Company provides its products and services to manufacturers
and service providers within the cable and satellite television,
wireless, telecommunications, office equipment, automotive and
industrial control markets who then incorporate the Company's
technology into their products and services. The success of the
Company is therefore dependent in large part on the performance of
its customers and the market acceptance of its customers' products,
which is outside of the Company's control.
The Company from time to time receives notices alleging that
its products infringe third-party proprietary rights. Patent and
similar litigation frequently is complex and expensive and its
outcome can be difficult to predict. If, as a result of
proprietary rights infringements by any of the Company's products,
the Company is required to discontinue sales of certain products,
eliminate certain features on its products, or pay royalties to
another party, the Company's future operating results could be
materially adversely affected.
The Company's quarterly operating results have varied and they
may continue to vary significantly depending on factors such as the
timing of significant license or service agreements, the terms of
the Company's licensing and service arrangements with its customers
and the timing of new product introductions and upgrades by the
Company and its competitors. The Company typically structures its
license agreements with customers to require commitments for a
minimum number of licenses, and license revenues are recognized as
the committed licenses are purchased. Additional revenues from a
customer will not be earned unless and until the initial committed
levels are exceeded. The Company's revenues in any quarter will
depend in significant part on its ability to license technologies
and provide services to new customers in that quarter and the
timing of product deployment by its customers. The Company
typically structures its professional services agreements with
customers to recognize revenue on the percentage of completion
method of accounting. The Company's expense levels are based in
part on expectations of future revenue levels and any shortfall in
expected revenue could therefore have a disproportionate adverse
effect on the Company's operating results in any given period.
<Page 14>
Impact of Year 2000
The "Year 2000" issue refers to the problem of certain computer
programs using abbreviated years with two digits and thus being
unable to distinguish, for example, whether the year "00" means 1900
or 2000 which may lead to such software failing to operate or
operating with erroneous results.
The Company has assembled a cross-department task force to
address the Year 2000 issue. The task force is addressing Spyglass
products, third-party software and products used by the Company and
software utilized by third parties that perform services for the
Company.
The task force has completed the assessment phase of its overall
plan. The assessment phase included a review of Spyglass products
and, as a result of these initial assessments, the Company has
determined that most Spyglass products and technologies currently
available are Year 2000 compliant. Certain products and technologies
currently available may not be Year 2000 compliant but will be so
certified prior to the end of 1999 as new versions are released.
However, known or unknown error s or defects in Spyglass' products
could result in delay or loss of revenue, diversion of development
resources, increased service and warranty costs or damage to Spyglass'
reputation, any of which could materially adversely affect
Spyglass' results of operations or financial condition. In
addition, the task force investigated other associated Year 2000
issues such as ensuring that third-party software used internally
and other products and services supplied to Spyglass are Year 2000
compliant. This investigation included but was not limited to review
of vendor and related Web sites and direct confirmation with
significant vendors. The majority of Spyglass' computer programs
have been purchased and implemented over the last three years. As
a result, most of these programs were Year 2000 compliant when
purchased or have since been upgraded with Year 2000 compliant
software upgrades. In the event third party internally used
systems are not Year 2000 compliant, the Company's ability to
process vendor transactions and perform certain other functions could
be impaired. Additionally, Spyglass has no legacy (mainframe)
systems, which are the source of much of the current concern
regarding Year 2000 compliance. During the assessment phase, the
Company received direct confirmation that all material internally
used systems will operate in the year 2000.
The task force is currently in the second phase of its efforts,
the testing phase. In the testing phase, the task force is conducting
testing to confirm Year 2000 compliance on products and services sold
and used by the Company in which Year 2000 compliance is in question.
For those products and services that fail testing or are assessed as
non-compliant, Spyglass will implement any required software
modifications and/or replacements of those products so that such
products will function properly with respect to dates in the year
2000.
During the quarter ended March 31, 1999, Spyglass completed
product testing on several Spyglass products. For most of those
products not yet tested, inspection reports and test plans have been
completed. Additionally, during the quarter ended March 31, 1999
Spyglass identified which internally used third party software it
will be testing in the upcoming months. The task force has a
September 30, 1999 target date to complete its testing efforts. Upon
completion of its testing phase, the task force will determine a time
period during which to implement any necessary changes.
<Page 15>
Spyglass does not currently have reliable information with
regard to Year 2000 compliance of its customers. As is the case with
all similarly situated companies, Spyglass' results of operations
could be materially impacted if its customers encounter Year 2000
issues unrelated to Spyglass products and services. In such a
scenario, it is reasonably likely that these customers would channel
resources into products and activities unrelated to products that
utilize Spyglass technologies and/or services, potentially limiting
Spyglass' future revenues from these customers.
The Company does not currently have a contingency plan in the
event that Spyglass products or third-party products and services
incur Year 2000 problems. Such a plan will be devised if and when
it has been determined that overall Year 2000 compliance is in
question.
As of March 31, 1999, the only Year 2000 cost incurred by the
Company has been the value of the time, based on standard hourly
rates for employees, spent by the task force, which approximates
$70,000. The Company estimates it will incur approximately $200,000
in future expenses to ensure systems will function properly with
respect to dates in the year 2000. These expenses are not expected
to have a material impact on the financial position, cash flow or
results of operations of the Company.
The costs and scope of the Company's Year 2000 compliance
efforts are based on management's best estimates which utilize
numerous assumptions of future events. However, there can be no
guarantee that these estimates and assumptions will be realized.
Furthermore, the actual impact of the Year 2000 issue could
materially differ from that anticipated.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company exports products to diverse geographic areas.
Substantially all foreign sales, however, are transacted in U.S.
dollars and therefore the Company is not exposed to significant
foreign currency market risk. Additionally, the Company does not
believe it has any material market risk exposures with regard to
foreign derivatives or other financial instruments.
<Page 16>
Part II.
Other Information
Item 1. Legal Proceedings
On January 28, 1999, the Company and certain of its officers and
directors were named as defendants in a purported class action
lawsuit filed in the United States District Court for the Northern
District of Illinois (Eastern Division). Thereafter, eleven
substantially similar actions were filed in the same Court. All
complaints principally claim that the defendants violated federal
securities laws allegedly by making false and misleading statements
and by failing to disclose material information concerning the
Company's financial performance during the purported class period of
October 20, 1998 through January 4, 1999. The complaints further
allege that certain officers and/or directors of the Company sold
stock in the open market during the class period and seek unspecified
damages. The plaintiffs in the twelve actions filed a motion to
consolidate the lawsuits into a single complaint. That motion was
granted and plaintiffs filed a consolidated complaint (the
"Complaint") on May 7, 1999. The Company plans to move to dismiss
this Complaint on or before May 21, 1999. Although the Company
believes that it and the other defendants have meritorious defenses
to the claims made in the Complaint and intends to contest the action
vigorously, an adverse resolution of the lawsuit could have a
material adverse affect on the Company's financial condition and
results of operations in the period in which the litigation is
resolved. The Company is not presently able to reasonably estimate
potential losses, if any, related to the Complaint.
Item 4. Submission of Matters to a Vote of Security Holders
On February 9, 1999, the following items were voted on at the
Annual Meeting of shareholders:
<TABLE>
<C> <C> <C> <C> <C>
Proposal For Against Abstain
1. To elect Charles T. Brumback
as a Class I director to serve
for a three-year term expiring
at the Annual Meeting following
the fiscal year ended
September 30, 2001 12,336,093 N/A N/A
To elect Douglas P. Colbeth as
a Class I director to serve for
a three-year term expiring at
the Annual Meeting following
the fiscal year ended
September 30, 2001 12,336,039 N/A N/A
</TABLE>
<Page 17>
<TABLE>
<C> <C> <C> <C> <C>
2. To approve an amendment to the
Company's 1995 Stock Incentive
Plan increasing the number of
shares of Common Stock issuable
under the Plan from 3,300,000
shares to 4,250,000 shares and
the continuance of the plan,
as amended 4,066,172 2,649,868 82,400
3. To ratify the selection of Ernst
& Young LLP as the Company's
independent auditors for the
current fiscal year 12,477,569 117,679 28,718
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The exhibits are listed in the accompanying Index to Exhibits
immediately following the signature page.
(b) Reports on Form 8-K
None.
Signatures
Pursuant to the requirements 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.
Spyglass, Inc.
Registrant
Date: May 12, 1999 /s/ Gary Vilchick
Gary Vilchick
Executive Vice President, Finance
Administration and Operations and
Chief Financial Officer
<Page 18>
INDEX TO EXHIBITS
Exhibit No. Description
10.2 1995 Stock Incentive Plan, as amended *
10.10 Senior Management Retention Agreement between
the Registrant and Christian T. Nall dated
January 15, 1999*
10.28+ Assignment, Assumption and Amendment of
Development and License Agreement between the
Registrant and Microsoft Corporation dated March 31,
1999.
10.29+ Development and License Agreement between Navitel
Communications, Inc. and Microsoft Corporation dated
November 23, 1998.
27 Financial Data Schedule
* Management contract or compensatory plan or arrangement filed as
an Exhibit to this form pursuant to Items 14(a) and 14(c) of Form 10-Q.
+ Confidential treatment requested as to certain portion, which
portion are omitted and filed separately with the Securities and
Exchange Commission.
EXHIBIT 10.2
SPYGLASS, INC.
1995 STOCK INCENTIVE PLAN, AS AMENDED
1. Purpose
The purpose of this 1995 Stock Incentive Plan (the "Plan") of
Spyglass, Inc., a Delaware corporation (the "Company"), is to advance
the interests of the Company by enhancing its ability to attract and
retain key employees, consultants and others who are in a position to
contribute to the Company's future growth and success.
2. Definitions
"Award" means any Option, Stock Appreciation Right, Performance
Shares, Restricted Stock or Unrestricted Stock awarded under the
Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" means a committee of not less than two members of
the Board appointed by the Board to administer the Plan, provided
that if and when the Common Stock is registered under Section 12 of
the Exchange Act, each member of the Committee shall be a
"Non-Employee Director" within the meaning of Rule 16b-3 under the
Exchange Act ("Rule 16b-3").
"Common Stock" means the Common Stock, $.01 par value per share,
of the Company.
"Company" means Spyglass, Inc. and, except where the context
otherwise requires, all present and future subsidiaries of Spyglass,
Inc. as defined in Section 424(f) of the Code.
"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Board, to receive amounts
due or exercise rights of the Participant in the event of the
Participant's death. In the absence of an effective designation by a
Participant, Designated Beneficiary shall mean the Participant's
estate.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
"Fair Market Value" means, with respect to Common Stock or any
other property, the fair market value of such property as determined
by the Board in good faith or in the manner established by the Board
from time to time.
"Incentive Stock Option" means an option to purchase shares of
Common Stock awarded to a Participant under Section 6 which is
intended to meet the requirements of Section 422 of the Code or any
successor provision.
<PAGE>
"Nonstatutory Stock Option" means an option to purchase shares
of Common Stock awarded to a Participant under Section 6 which is not
intended to be an Incentive Stock Option. "Option" means an Incentive
Stock Option or a Nonstatutory Stock Option.
"Participant" means a person selected by the Board to receive an
Award under the Plan.
"Performance Shares" mean shares of Common Stock which may be
earned by the achievement of performance goals established for a
Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the
Exchange Act or any successor provision.
"Restricted Period" means the period of time selected by the
Board during which shares subject to a Restricted Stock Award may be
repurchased by or forfeited to the Company.
"Restricted Stock" means shares of Common Stock awarded to a
Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any
excess in Fair Market Value of shares of Common Stock over the
exercise price awarded to a Participant under Section 7.
"Unrestricted Stock" means shares of Common Stock awarded to a
Participant under Section 9(c).
3. Administration
The Plan will be administered by the Board. The Board shall
have authority to make Awards and to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan
as it shall deem advisable from time to time, and to interpret the
provisions of the Plan. The Board's decisions shall be final and
binding. No member of the Board shall be liable for any action or
determination relating to the Plan made in good faith. To the extent
permitted by applicable law, the Board may delegate to one or more
executive officers of the Company the power to make Awards to
Participants who are not Reporting Persons and all determinations
under the Plan with respect thereto, provided that the Board shall
fix the maximum amount of such Awards to be made by such executive
officers and a maximum amount for any one Participant. To the extent
permitted by applicable law, the Board may appoint a Committee to
administer the Plan and, in such event, all references to the Board
in the Plan shall mean such Committee or the Board. All decisions by
the Board or the Committee pursuant to the Plan shall be final and
binding on all persons having or claiming any interest in the Plan or
in any Award.
4. Eligibility
All of the Company's employees, officers, directors, consultants
and advisors who are expected to contribute to the Company's future
growth and success, other than persons who have irrevocably elected
not to be eligible, are eligible to be Participants in the Plan.
Incentive Stock Options may be awarded only to persons eligible to
receive Incentive Stock Options under the Code.
<PAGE>
5. Stock Available for Awards
(a) Subject to adjustment under subsection (b) below, Awards
may be made under the Plan for up to 4,250,000 shares of Common
Stock. If any Award in respect of shares of Common Stock expires or
is terminated unexercised or is forfeited for any reason or settled
in a manner that results in fewer shares outstanding than were
initially awarded, the shares subject to such Award or so
surrendered, as the case may be, to the extent of such expiration,
termination, forfeiture or decrease, shall again be available for
award under the Plan, subject, however, in the case of Incentive
Stock Options, to any limitation required under the Code and provided
that shares made available pursuant to this sentence shall be
available for Awards to Reporting Persons only to the extent
consistent with Rule 16b-3. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury
shares.
(b) In the event that the Board, in its sole discretion,
determines that any stock dividend, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination or other similar transaction affects the Common
Stock such that an adjustment is required in order to preserve the
benefits or potential benefits intended to be made available under
the Plan, then the Board, subject, in the case of Incentive Stock
Options, to any limitation required under the Code, shall equitably
adjust any or all of (i) the number and kind of shares in respect of
which Awards may be made under the Plan, (ii) the number and kind of
shares subject to outstanding Awards, and (iii) the award, exercise
or conversion price with respect to any of the foregoing, and if
considered appropriate, the Board may make provision for a cash
payment with respect to an outstanding Award, provided that the
number of shares subject to any Award shall always be a whole number.
(c) The Board may grant Awards under the Plan in substitution
for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company as a
result of a merger or consolidation of the employing corporation with
the Company (or a subsidiary of the Company) or the acquisition by
the Company (or a subsidiary of the Company) of property or stock of
the employing corporation. The substitute Awards shall be granted on
such terms and conditions as the Board considers appropriate in the
circumstances.
(d) Subject to adjustment under Section 5(b), the maximum
number of shares with respect to which an Award may be granted to any
employee under the Plan shall not exceed 150,000 per calendar year.
For purposes of calculating such maximum number, (a) an Award shall
continue to be treated as outstanding notwithstanding its repricing,
cancellation or expiration and (b) the repricing of an outstanding
Award or issuance of a new Award in substitution for a cancelled
Award shall be deemed to constitute the grant of a new additional
Award separate from the original grant of the Award that is repriced
or cancelled.
6. Stock Options
(a) General
<PAGE>
(i) Subject to the provisions of the Plan, the Board may
award Incentive Stock Options and Nonstatutory Stock Options, and
determine the number of shares of Common Stock to be covered by each
Option, the option price of such Option and the conditions and
limitations applicable to the exercise of such Option. The terms and
conditions of Incentive Stock Options shall be subject to and comply
with Section 422 of the Code, or any successor provision, and any
regulations thereunder.
(ii) The Board shall establish the exercise price at
the time each Option is awarded. In the case of Incentive Stock
Options, such price shall not be less than 100% of the Fair Market
Value of the Common Stock on the date of award.
(iii) Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in
the applicable Award or thereafter. The Board may impose such
conditions with respect to the exercise of Options, including
conditions relating to applicable federal or state securities laws,
as it considers necessary or advisable.
(iv) Options granted under the Plan may provide for the
payment of the exercise price by delivery of cash or check in an
amount equal to the exercise price of such Options or, to the extent
permitted by the Board at or after the award of the Option, by (A)
delivery of shares of Common Stock owned by the optionee for at least
six months (or such shorter period as is approved by the Board),
valued at their Fair Market Value, (B) delivery of a promissory note
of the optionee to the Company on terms determined by the Board, (C)
delivery of an irrevocable undertaking by a broker to deliver
promptly to the Company sufficient funds to pay the exercise price or
delivery of irrevocable instructions to a broker to deliver promptly
to the Company cash or a check sufficient to pay the exercise price,
(D) payment of such other lawful consideration as the Board may
determine, or (E) any combination of the
foregoing.
(v) The Board may provide for the automatic award of an
Option upon the delivery of shares to the Company in payment of the
exercise price of an Option for up to the number of shares so
delivered.
(vi) The Board may at any time accelerate the time at which
all or any part of an Option may be exercised.
(b) Incentive Stock Options
Options granted under the Plan which are intended to be
Incentive Stock Options shall be subject to the following additional
terms and conditions:
(i) All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in
the option agreement covering such Incentive Stock Options. The
Option exercise period shall not exceed ten years from the date of
grant.
<PAGE>
(ii) If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such
option, the owner of stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company (after
taking into account the attribution of stock ownership rule of
Section 424(b) and of the Code), then the following special
provisions shall be applicable to the Incentive Stock Option granted
to such individual:
(x) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than
110% of the Fair Market Value of one share of Common Stock at
the time of grant; and
(y) The option exercise period shall not exceed five
years from the date of grant.
(iii) For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute
Incentive Stock Options shall not constitute Incentive Stock Options
to the extent that such options, in the aggregate, become exercisable
for the first time in any one calendar year for shares of Common
Stock with an aggregate Fair Market Value (determined as of the
respective date or dates of grant) of more than $100,000.
(iv) No Incentive Stock Option may be exercised unless, at
the time of such exercise, the Participant is, and has been
continuously since the date of grant of his or her Option, employed
by the Company, except that:
(x) an Incentive Stock Option may be exercised within
the period of three months after the date the Participant ceases
to be an employee of the Company (or within such lesser period
as may be specified in the applicable option agreement),
provided, that the agreement with respect to such Option may
designate a longer exercise period and that the exercise after
such three-month period shall be treated as the exercise of a
Nonstatutory Stock Option under the Plan;
(y) if the Participant dies while in the employ of
the Company, or within three months after the Participant ceases
to be such an employee, the Incentive Stock Option may be
exercised by the Participant's Designated Beneficiary within the
period of one year after the date of death (or within such
lesser period as may be specified in the applicable Option
agreement); and
(z) if the Participant becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor
provision thereto) while in the employ of the Company, the
Incentive Stock Option may be exercised within the period of one
year after the date of death (or within such lesser period as
may be specified in the applicable Option agreement).
For all purposes of the Plan and any Option granted hereunder,
"employment" shall be defined in accordance with the provisions of
Section 1.421-7(h) of the Income Tax Regulations (or any successor
regulations). Notwithstanding the foregoing provisions, no Incentive
Stock Option may be exercised after its expiration date.
<PAGE>
(v) Incentive Stock Options shall not be assignable or
transferable by the person to whom they are granted, either
voluntarily or by operation of law, except by will or the laws of
descent and distribution, and, during the life of the optionee, shall
be exercisable only by the optionee.
7. Stock Appreciation Rights
(a) The Board may grant SARs entitling recipients on exercise
of the SAR to receive an amount, in cash or Common Stock or a
combination thereof (such form to be determined by the Board),
determined in whole or in part by reference to appreciation in the
Fair Market Value of the Common Stock between the date of the Award
and the exercise of the Award. A SAR shall entitle the Participant
to receive, with respect to each share of Common Stock as to which
the SAR is exercised, the excess of the share's Fair Market Value on
the date of exercise over its Fair Market Value on the date the SAR
was granted. The Board may also grant SARs that provide that,
following a change in control of the Company (as defined by the Board
at the time of the Award), the holder of such SAR will be entitled to
receive, with respect to each share of Common Stock subject to the
SAR, an amount equal to the excess of a specified value (which may
include an average of values) for a share of Common Stock during a
period preceding such change in control over the Fair Market Value of
a share of Common Stock on the date the SAR was granted.
(b) SARs may be granted in tandem with, or independently of,
Options granted under the Plan. A SAR granted in tandem with an
Option which is not an Incentive Stock Option may be granted either
at or after the time the Option is granted. A SAR granted in tandem
with an Incentive Stock Option may be granted only at the time the
Option is granted.
(c) When SARs are granted in tandem with Options, the following
provisions will apply:
(i) The SAR will be exercisable only at such time or
times, and to the extent, that the related Option is exercisable and
will be exercisable in accordance with the procedure required for
exercise of the related Option.
(ii) The SAR will terminate and no longer be exercisable
upon the termination or exercise of the related Option, except that a
SAR granted with respect to less than the full number of shares
covered by an Option will not be reduced until the number of shares
as to which the related Option has been exercised or has terminated
exceeds the number of shares not covered by the SAR.
(iii) The Option will terminate and no longer be
exercisable upon the exercise of the related SAR.
(iv) The SAR will be transferable only with the related
Option.
(v) A SAR granted in tandem with an Incentive Stock Option
may be exercised only when the market price of the Common Stock
subject to the Option exceeds the exercise price of such Option.
<PAGE>
(d) A SAR not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the
Board may specify.
(e) The Board may at any time accelerate the time at which all
or any part of the SAR may be exercised.
8. Performance Shares
(a) The Board may make Performance Share Awards entitling
recipients to acquire shares of Common Stock upon the attainment of
specified performance goals. The Board may make Performance Share
Awards independent of or in connection with the granting of any other
Award under the Plan. The Board in its sole discretion shall
determine the performance goals applicable under each such Award, the
periods during which performance is to be measured, and all other
limitations and conditions applicable to the awarded Performance
Shares; provided, however, that the Board may rely on the performance
goals and other standards applicable to other performance plans of
the Company in setting the standards for Performance Share Awards
under the Plan.
(b) Performance Share Awards and all rights with respect to
such Awards may not be sold, assigned, transferred, pledged or
otherwise encumbered.
(c) A Participant receiving a Performance Share Award shall
have the rights of a stockholder only as to shares actually received
by the Participant under the Plan and not with respect to shares
subject to an Award but not actually received by the Participant. A
Participant shall be entitled to receive a stock certificate
evidencing the acquisition of shares of Common Stock under a
Performance Share Award only upon satisfaction of all conditions
specified in the agreement evidencing the Performance Share Award.
(d) The Board may at any time accelerate or waive any or all of
the goals, restrictions or conditions imposed under any Performance
Share Award.
9. Restricted and Unrestricted Stock
(a) The Board may grant Restricted Stock Awards entitling
recipients to acquire shares of Common Stock, subject to the right of
the Company to repurchase all or part of such shares at their
purchase price (or to require forfeiture of such shares if purchased
at no cost) from the recipient in the event that conditions specified
by the Board in the applicable Award are not satisfied prior to the
end of the applicable Restricted Period or Restricted Periods
established by the Board for such Award. Conditions for repurchase
(or forfeiture) may be based on continuing employment or service or
achievement of pre-established performance or other goals and
objectives.
<PAGE>
(b) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by
the Board, during the applicable Restricted Period. Shares of
Restricted Stock shall be evidenced in such manner as the Board may
determine. Any certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant
and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the
Company (or its designee). At the expiration of the Restricted
Period, the Company (or such designee) shall deliver such
certificates to the Participant or if the Participant has died, to
the Participant's Designated Beneficiary.
(c) The Board may, in its sole discretion, grant (or sell at a
purchase price determined by the Board, which shall not be lower than
85% of Fair Market Value on the date of sale) to Participants shares
of Common Stock free of any restrictions under the Plan
("Unrestricted Stock").
(d) The purchase price for each share of Restricted Stock and
Unrestricted Stock shall be determined by the Board of Directors and
may not be less than the par value of the Common Stock. Such
purchase price may be paid in the form of past services or such other
lawful consideration as is determined by the Board.
(e) The Board may at any time accelerate the expiration of the
Restricted Period applicable to all, or any particular, outstanding
shares of Restricted Stock.
10. General Provisions Applicable to Awards
(a) Applicability of Rule 16b-3. Those provisions of the Plan
which make an express reference to Rule 16b-3 shall apply to the
Company only at such time as the Company's Common Stock is registered
under the Exchange Act, or any successor provision, and then only to
Reporting Persons.
(b) Reporting Person Limitations. Notwithstanding any other
provision of the Plan, to the extent required to qualify for the
exemption provided by Rule 16b-3, (i) any Option, SAR, Performance
Share Award or other similar right related to an equity security
issued under the Plan to a Reporting Person shall not be transferable
other than by will or the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the
Code or Title I or the Employee Retirement Income Security Act
("ERISA"), or the rules thereunder, and shall be exercisable during
the Participant's lifetime only by the Participant or the
Participant's guardian or legal representative, and (ii) the
selection of a Reporting Person as a Participant and the terms of his
or her Award shall be determined only in accordance with the
applicable provisions of Rule 16b-3.
<PAGE>
(c) Documentation. Each Award under the Plan shall be
evidenced by an instrument delivered to the Participant specifying
the terms and conditions thereof and containing such other terms and
conditions not inconsistent with the provisions of the Plan as the
Board considers necessary or advisable. Such instruments may be in
the form of agreements to be executed by both the Company and the
Participant, or certificates, letters or similar documents,
acceptance of which will evidence agreement to the terms thereof and
of this Plan.
(d) Board Discretion. Except as otherwise provided by the
Plan, each type of Award may be made alone, in addition to or in
relation to any other type of Award. The terms of each type of Award
need not be identical, and the Board need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular
Award, any determination with respect to an Award may be made by the
Board at the time of award or at any time thereafter.
(e) Termination of Status. Subject to the provisions of
Section 6(b)(iv), the Committee shall determine the effect on an
Award of the disability, death, retirement, authorized leave of
absence or other termination of employment or other status of a
Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated
Beneficiary may exercise rights under such Award.
(f) Mergers, Etc. In the event of a consolidation, merger or
other reorganization in which all of the outstanding shares of Common
Stock are exchanged for securities, cash or other property of any
other corporation or business entity (an "Acquisition") or in the
event of a liquidation of the Company, the Board of Directors of the
Company, or the board of directors of any corporation assuming the
obligations of the Company, may, in its discretion, take any one or
more of the following actions as to outstanding Awards: (i) provide
that such Awards shall be assumed, or substantially equivalent Awards
shall be substituted, by the acquiring or succeeding corporation (or
an affiliate thereof) on such terms as the Board determines to be
appropriate, (ii) upon written notice to Participants, provide that
all unexercised Options or SARs will terminate immediately prior to
the consummation of such transaction unless exercised by the
Participant within a specified period following the date of such
notice, (iii) in the event of an Acquisition under the terms of which
holders of the Common Stock of the Company will receive upon
consummation thereof a cash payment for each share surrendered in the
Acquisition (the "Acquisition Price"), make or provide for a cash
payment to Participants equal to the difference between (A) the
Acquisition Price times the number of shares of Common Stock subject
to outstanding Options or SARs (to the extent then exercisable at
prices not in excess of the Acquisition Price) and (B) the aggregate
exercise price of all such outstanding Options or SARs in exchange
for the termination of such Options and SARs, and (iv) provide that
all or any outstanding Awards shall become exercisable or realizable
in full prior to the effective date of such Acquisition.
<PAGE>
(g) Withholding. The Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes
required by law to be withheld in respect of Awards under the Plan no
later than the date of the event creating the tax liability. In the
Board's discretion, and subject to such conditions as the Board may
establish, such tax obligations may be paid in whole or in part in
shares of Common Stock, including shares retained from the Award
creating the tax obligation, valued at their Fair Market Value. The
Company may, to the extent permitted by law, deduct any such tax
obligations from any payment of any kind otherwise due to the
Participant.
(h) Foreign Nationals. Awards may be made to Participants who
are foreign nationals or employed outside the United States on such
terms and conditions different from those specified in the Plan as
the Board considers necessary or advisable to achieve the purposes of
the Plan or comply with applicable laws.
(i) Amendment of Award. The Board may amend, modify or
terminate any outstanding Award, including substituting therefor
another Award of the same or a different type, changing the date of
exercise or realization and converting an Incentive Stock Option to a
Nonstatutory Stock Option, provided that the Participant's consent to
such action shall be required unless the Board determines that the
action, taking into account any related action, would not materially
and adversely affect the Participant.
(j) Cancellation and New Grant of Options. The Board of
Directors shall have the authority to effect, at any time and from
time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding Options under the Plan and the
grant in substitution therefor of new Options under the Plan covering
the same or different numbers of shares of Common Stock and having an
option exercise price per share which may be lower or higher than the
exercise price per share of the cancelled Options or (ii) the
amendment of the terms of any and all outstanding Options under the
Plan to provide an option exercise price per share which is higher or
lower than the then current exercise price per share of such
outstanding Options.
(k) Conditions on Delivery of Stock. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan
or to remove restrictions from shares previously delivered under the
Plan (i) until all conditions of the Award have been satisfied or
removed, (ii) until, in the opinion of the Company's counsel, all
applicable federal and state laws and regulations have been complied
with, (iii) if the outstanding Common Stock is at the time listed on
any stock exchange, until the shares to be delivered have been listed
or authorized to be listed on such exchange upon official notice of
notice of issuance, and (iv) until all other legal matters in
connection with the issuance and delivery of such shares have been
approved by the Company's counsel. If the sale of Common Stock has
not been registered under the Securities Act of 1933, as amended, the
Company may require, as a condition to exercise of the Award, such
representations or agreements as the Company may consider appropriate
to avoid violation of such Act and may require that the certificates
evidencing such Common Stock bear an appropriate legend restricting
transfer.
<PAGE>
11. Miscellaneous
(a) No Right To Employment or Other Status. No person shall
have any claim or right to be granted an Award, and the grant of an
Award shall not be construed as giving a Participant the right to
continued employment or service for the Company. The Company
expressly reserves the right at any time to dismiss a Participant
free from any liability or claim under the Plan, except as expressly
provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have
any rights as a stockholder with respect to any shares of Common
Stock to be distributed under the Plan until he or she becomes the
record holder thereof.<PAGE>
(c) Exclusion from Benefit Computations. No amounts payable
upon exercise of Awards granted under the Plan shall be considered
salary, wages or compensation to Participants for purposes of
determining the amount or nature of benefits that Participants are
entitled to under any insurance, retirement or other benefit plans or
programs of the Company.
(d) Effective Date and Term. The Plan shall become effective
upon the closing of the Company's initial public offering. No Award
granted under the Plan shall become effective until the Plan shall
have been approved by the Company's stockholders. If such
stockholder approval is not obtained within twelve months after the
date of the Board's adoption of the Plan, no Options previously
granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. No Award
may be made under the Plan after May 7, 2005, but Awards previously
granted may extend beyond that date.
(e) Amendment of Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that
no amendment shall be made without stockholder approval if such
approval is necessary to comply with any applicable tax or regulatory
requirement. Amendments requiring stockholder approval shall become
effective when adopted by the Board of Directors, but no Incentive
Stock Option granted after the date of such amendment shall become
exercisable (to the extent that such amendment to the Plan was
required to enable the Company to grant such Incentive Stock Option
to a particular Participant) unless and until such amendment shall
have been approved by the Company's stockholders. If such
stockholder approval is not obtained within twelve months of the
Board's adoption of such amendment, any Incentive Stock Options
granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the
Company to grant such option to a particular Participant.
(f) Governing Law. The provisions of the Plan shall be
governed by and interpreted in accordance with the laws of the State
of Delaware.
EXHIBIT 10.10
SPYGLASS, INC.
Senior Management Retention Agreement
Naperville Corporate Center
1240 East Diehl Road
Naperville, IL 60563
Dear Christian Nall:
Spyglass, Inc. (the "Company") recognizes that, as is the case
with many publicly-held corporations, the possibility of a change in
control of the Company exists and that such possibility, and the
uncertainty and questions which it may raise among key personnel, may
result in the departure or distraction of key personnel to the
detriment of the Company and its stockholders.
The Board of Directors of the Company (the "Board") has
determined that appropriate steps should be taken to reinforce and
encourage the continued employment and dedication of the Company's
key personnel, including yourself, without distraction from the
possibility of a change in control of the Company and related events
and circumstances.
As inducement for and in consideration of your remaining in its
employ, the Company agrees that you shall receive the severance
benefits set forth in this letter agreement (the "Agreement") in the
event your employment with the Company is terminated under the
circumstances described below subsequent to a Change in Control of
the Company (as defined below).
1. Certain Definitions.
As used herein, the following terms shall have the following
respective meanings:
<PAGE>
1.1 "Change in Control" shall mean:
(a) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person")
of beneficial ownership (within the meaning of Rule 13d_3 promulgated
under the Exchange Act) of 20% or more of either (i) the then-
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (ii) 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"); provided, however, that for purposes of this
subsection (a), the following acquisitions shall not constitute a
Change in Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the Company, or (iv) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 1.1; or
(b) individuals who, as of the date hereof, constitute
the members of the Board (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority
of the Incumbent Directors shall be deemed to be an Incumbent
Director (except that this proviso clause shall not apply to any
individual whose initial election as a director occurs as a result of
an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of
<PAGE>
proxies or consents by or on behalf of a Person other than the
Board); or
(c) the consummation of a reorganization, merger or
consolidation involving the Company or a sale or other disposition of
all or substantially all of the assets of the Company (a "Business
Combination"), unless, immediately following such Business
Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of the then-outstanding shares of common
stock and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of directors,
respectively, of the resulting or acquiring corporation in such
Business Combination in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, respectively, (ii) no Person (excluding any resulting or
acquiring corporation in such Business Combination or any employee
benefit plan (or related trust) of the Company or of such resulting
or acquiring corporation in such Business Combination) beneficially
owns, directly or indirectly, 30% or more of the then outstanding
shares of common stock of such resulting or acquiring corporation in
such Business Combination, or of the combined voting power of the
then_outstanding voting securities of such corporation (except to the
extent that such ownership existed prior to the Business Combination)
and (iii) at least half of the members of the board of directors of
the resulting or acquiring corporation in such Business Combination
were members of the Incumbent Board at the time of the execution of
<PAGE>
the initial agreement, or of the action of the Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
1.2 "Cause" shall mean:
(a) your willful failure to substantially perform your
reasonable assigned duties as an officer of the Company (other than
any such failure resulting from incapacity due to physical or mental
illness), which failure is not cured within 30 days after a written
demand for substantial performance is delivered to you by the Board
which specifically identifies the manner in which the Board believes
that you have not substantially performed your duties; or
(b) your willful engagement in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this Section 1.2, no act or failure to act, on
your part shall be considered "willful" unless it is done, or omitted
to be done, by you in bad faith and without reasonable belief that
your action or omission was in the best interests of the Company.
1.3 "Good Reason" shall mean the occurrence, without your
written consent, of any of the following circumstances unless such
circumstance is fully corrected prior to the Date of Termination
specified in the Notice of Termination (each as defined below) given
in respect thereof (provided that such right of correction by the
Company shall only apply to the first Notice of Termination for Good
Reason given by you):
(a) the assignment to you (without your written consent)
of any duties inconsistent in any respect with your position
(including status, offices, titles and reporting requirements),
<PAGE>
authority or responsibilities in effect as immediately prior to the
Change in Control, or any other action by the Company which results
in a diminution in such position, authority or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the Company
promptly after receipt of written notice thereof given by you;
(b) a reduction in your annual base salary as in effect
on the date hereof or as the same may be increased from time to time;
(c) the failure by the Company to (i) continue in effect
any material compensation or benefit plan in which you participate
immediately prior to the Change in Control, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan)
has been made with respect to such plan, (ii) continue your
participation therein (or in such substitute or alternative plan) on
a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of your participation relative to
other participants, as existed at the time of the Change in Control
or (iii) award cash bonuses to you in amounts and in a manner
substantially consistent with past practice in light of the Company's
financial performance;
(d) the failure by the Company to continue to provide
you with benefits substantially similar to those enjoyed by you under
any of the Company's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
Change in Control, the taking of any action by the Company which
would directly or indirectly materially reduce any of such benefits,
or the failure by the Company to provide you with the number of paid
vacation days to which you are entitled on the basis of years of
service with the Company in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
<PAGE>
(e) a change by the Company in the location at which you
perform your principal duties for the Company to a new location that
is both (i) outside a radius of 35 miles from your principal
residence at the time of the Change in Control and (ii) more than 20
miles from the location at which you perform your principal duties
for the Company at the time of the Change in Control; or a
requirement by the Company that you travel on Company business to a
substantially greater extent than required immediately prior to the
Change in Control;
(f) the failure of the Company to obtain a reasonably
satisfactory agreement from any successor to assume and agree to
perform this Agreement, as required by Section 5; or
(g) a purported termination of your employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Sections 3.2 and 6, which purported termination shall
not be effective for purposes of this Agreement.
For purposes of this Agreement, any good faith determination of
"Good Reason" made by the Board shall be conclusive, provided that
Incumbent Directors then comprise a majority of the Board.
1.4 "Disability" shall mean your absence from the full-
time performance of your duties with the Company for six consecutive
months as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician selected
by the Company or its insurers and acceptable to you or your legal
representative.
2. Term of the Agreement. The term of this Agreement (the
"Term") shall commence on as of the date hereof and shall continue in
effect through December 31, 1998; provided, however, that commencing
on January l, 1999 and each January l thereafter, the Term shall be
automatically extended for one additional year unless, not later than
<PAGE>
October 31 of the preceding calendar year, the Company shall have
given you written notice that the Term will not be extended. This
Agreement, and all rights and obligations of the parties hereunder,
shall expire upon (a) the expiration of the Term if a Change in
Control has not occurred during the Term, (b) the date 24 months
after the date of the Change in Control, if you are still employed by
the Company as of such date, or (c) the fulfillment by the Company of
all of its obligations under Section 4 if your employment with the
Company terminates within 24 months following a Change in Control.
3. Employment Status; Termination Following Change in Control.
3.1 Not Employment Contract. You acknowledge that this
Agreement does not constitute a contract of employment or impose on
the Company any obligation to retain you as an employee and that this
Agreement does not prevent you from terminating your employment at
any time. If your employment with the Company terminates for any
reason and subsequently a Change in Control shall occur, you shall
not be entitled to any benefits hereunder.
3.2 Termination of Employment. Any termination of your
employment by the Company or by you within 24 months following a
Change in Control of the Company during the Term shall be
communicated by written notice of termination ("Notice of
Termination") to the other party hereto in accordance with Section 6.
If such employment termination is for Cause, Good Reason or
Disability, the Notice of Termination shall so state. The "Date of
Termination" shall mean the effective date of such termination as
specified in the Notice of Termination (provided that no such Notice
of Termination shall specify an effective date less than fifteen days
or more than 120 days after the date such Notice of Termination is
delivered).
<PAGE>
4. Rights Upon Termination.
4.1 Compensation. You shall be entitled to the following
benefits if a Change in Control occurs during the Term and your
employment with the Company terminates within 24 months following
such Change in Control:
(a) Termination Without Cause or for Good Reason. If
your employment with the Company is terminated by the Company (other
than for Cause, Disability or your death) or by you for Good Reason
within 24 months following a Change in Control, then you shall be
entitled to the following benefits:
(i) the Company shall pay to you in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
(1)the sum of (A) your annual base salary
through the Date of Termination, (B) the product of (x) the annual
bonus paid or payable (including any bonus or portion thereof which
has been earned but deferred) for the most recently completed fiscal
year and (y) a fraction, the number of which is the number of days in
the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (C) the amount of any compensation
previously deferred by you (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in
clauses (A), (B), and (C) shall be hereinafter referred to as the
"Accrued Obligations"); and
(2)the amount equal to the sum of (A) your
highest annual base salary during the five-year period prior to the
Change in Control and (B) your highest annual bonus during the five-
year period prior to the Change in Control.
<PAGE>
(ii) for 12 months after your Date of Termination,
or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall
continue to provide benefits to you and your family at least equal to
those which would have been provided to you and them in accordance
with the applicable plans, programs, practices and policies in effect
on the Date of Termination (excluding any savings and/or retirement
plans) if your employment had not been terminated; provided, however,
that if you become reemployed with another employer and are eligible
to receive medical or other welfare benefits under another employer-
provided plan, the medical and other welfare benefits described
herein shall not be provided to the extent the same are provided
under such other plan during such applicable period of eligibility;
and
(iii) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to you any other
amounts or benefits required to be paid or provided or which you are
eligible to receive following your termination of employment under
any plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Resignation without Good Reason; Termination for
Death or Disability. If you voluntarily terminate your employment
within 24 months following a Change in Control, excluding a
termination for Good Reason, or if your employment is terminated by
reason of your death or Disability within 24 months following a
Change in Control, the Company shall (i) pay you, in a lump sum in
cash within 30 days after the Date of Termination, the Accrued
Obligations and (ii) timely pay or provide to you the Other Benefits.
<PAGE>
(c) Termination for Cause. If your employment is
terminated by the Company for Cause within 24 months following a
Change in Control, the Company shall (i) pay you, in a lump sum in
cash within 30 days after the Date of Termination, the sum of (A)
your annual base salary through the Date of Termination and (B) the
amount of any compensation previously deferred by you, in each case
to the extent not theretofore paid, and (ii) timely pay or provide to
you the Other Benefits.
4.2 Taxes. Payments under this Agreement shall be made
without regard to whether the deductibility of such payments (or any
other payments to or for your benefit) would be limited or precluded
by Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") and without regard to whether such payments (or any other
payments) would subject you to the federal excise tax levied on
certain "excise parachute payments" under Section 4999 of the Code;
provided, that if the total of all payments to or for your benefit,
after deduction of all federal taxes (including the tax set forth in
Section 4999 of the Code, if applicable) with respect to such
payments (the "total after-tax payments"), would be increased by the
limitation or elimination of any payment under this Agreement,
amounts payable under this Agreement shall be reduced to the extent,
and only to the extent, necessary to maximize the total after-tax
payments. The determination as to whether and to what extent
payments under this agreement are required to be reduced in
accordance with the preceding sentence shall be made by agreement
between you and the independent public accounting firm of the Company
(whose fees and expenses shall be borne solely by the Company). To
the extent that any elimination or reduction of payments is made in
accordance with this Section 4.2, the determination as to which
payments shall be eliminated or reduced shall be made by you.
<PAGE>
4.3 Mitigation. Except as provided in Section 4.1(a)(ii)
hereof, you shall not be required to mitigate the amount of any
payment or benefits provided for in this Section 4 by seeking other
employment or otherwise, nor shall the amount of any payment or
benefits provided for in this Section 4 be reduced by any
compensation earned by you as a result of employment by another
employer, by retirement benefits or by offset against any amount
claimed to be owed by you to the Company or otherwise.
4.4 Expenses. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expenses which you
may reasonably incur as a result of any claim or contest by the
Company, you or others regarding the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee
of performance thereof (including as a result of any contest by you
regarding the amount of any payment or benefits pursuant to this
Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code.
5. Successors; Binding Agreement.
5.1 The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business or assets of the Company
expressly to assume and agree to perform this Agreement to the same
extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain an
assumption of this Agreement at or prior to the effectiveness of any
succession shall be a breach of this Agreement and shall constitute
Good Reason if you elect to terminate your employment, except that
for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
<PAGE>
Termination. As used in this Agreement, "Company" shall mean the
Company as defined above and any successor to its business or assets
as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
5.2 This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable
to you hereunder if you had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to your devisee, legatee or other
designee or if there is no such designee, to your estate.
6. Notice. All notices, instructions and other communications
given hereunder or in connection herewith shall be in writing. Any
such notice, instruction or communication shall be sent either (i) by
registered or certified mail, return receipt requested, postage
prepaid, or (ii) via a reputable nationwide overnight courier
service, in each case addressed to the Chief Executive Officer of the
Company, at Naperville Corporate Center, 1240 East Diehl Road,
Naperville, Illinois 60563, and to you at the address shown above (or
to such other address as either the Company or you may have furnished
to the other in writing in accordance herewith). Any such notice,
instruction or communication shall be deemed to have been delivered
two business days after it is sent by registered or certified mail,
return receipt requested, postage prepaid, or one business day after
it is sent via a reputable nationwide overnight courier service.
7. Miscellaneous.
7.1 For purposes of this Agreement, your employment with the
Company shall not be deemed to have terminated if you continue to be
employed by a subsidiary of the Company.
<PAGE>
7.2 The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any
other provision of this Agreement, which shall remain in full force
and effect.
7.3 The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Delaware.
7.4 No waiver by you at any time of any breach of, or
compliance with, any provision of this Agreement to be performed by
the Company shall be deemed a waiver of that or any other provision
at any subsequent time.
7.5 This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but both of which together
will constitute one and the same instrument.
7.6 Any payments provided for hereunder shall be paid net of
any applicable withholding required under federal, state or local
law.
7.7 This Agreement sets forth the entire agreement of the
parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or
written, by any officer, employee or representative of any party
hereto; and any prior agreement of the parties hereto in respect of
the subject matter contained herein is hereby terminated and
canceled.
If this accurately reflects our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of
this letter, which will then constitute our agreement on this
subject.
<PAGE>
Sincerely,
SPYGLASS, INC.
By: /s/ Douglas Colbeth
Agreed to this 15 day of January, 1999
/s/ Christian T. Nall
(Signature)
Christian Nall
(Print Name)
Exhibit 10.28
ASSIGNMENT, ASSUMPTION AND AMENDMENT OF
DEVELOPMENT AND LICENSE AGREEMENT
This Assignment, Assumption and Amendment of the Development &
License Agreement (this "Agreement") is entered into as of March 31,
1999 by and between MICROSOFT CORPORATION, a Washington corporation
located at One Microsoft Way, Redmond, WA 98052 ("Microsoft") and
SPYGLASS, INC. a Delaware corporation located at 1240 East Diehl
Road, Naperville, Illinois 60653 ("Spyglass").
RECITALS
A. Pursuant to a Joint Development & License Agreement entered
into by Microsoft and Navitel Communications, Inc. ("Navitel") dated
July 7, 1997, as amended by that certain Amendment Number 1 to Joint
Development & License Agreement dated January 23, 1998 (as amended,
the "Original Agreement"), Navitel and Microsoft agreed to develop a
software product which combines extensions to the Windows CE
operating system and applications software for an Internet-enabled
telephone.
B. On November 23, 1998, Microsoft and Navitel entered into a
Development and License Agreement (the "Existing Agreement") that
amended and restated the Original Agreement. The Existing Agreement
restructured the relationship between Navitel and Microsoft,
clarified ownership of the technology developed under the Original
Agreement and provided a master agreement establishing the basic
terms and conditions under which Navitel would provide development,
support and testing services to Microsoft.
C. Spyglass intends to acquire Navitel and will thereby assume
all of Navitel's obligations under the Existing Agreement.
Now, therefore, in consideration of the mutual provisions set
forth in this Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
AGREEMENT
1. ASSIGNMENT AND ASSUMPTION
1.1 Condition Precedent. The effectiveness of this Agreement is
expressly contingent upon the purchase of 100% of all
outstanding stock, whether common, preferred, non-voting or
otherwise, in Navitel by Spyglass ("Acquisition") and the
execution and effectiveness of all related documents to
consummate the Acquisition. In the event that, for any reason,
the Acquisition is not completed, this Agreement shall be null
and void.
1.2 Assignment and Assumption. Upon the Acquisition, Navitel will
have assigned, transferred and conveyed to Spyglass and Spyglass
thereby will have assumed all obligations set forth in the
Existing Agreement. Provided the condition precedent in Section
1.1 of this Agreement has been satisfied, Microsoft consents to
such transfer, assignment and conveyance to Spyglass of the
Existing Agreement pursuant to Section 14.5 of the Existing
Agreement. All references in the Existing Agreement to "Navitel"
shall be deemed to refer to "Spyglass."
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
1.3 No Public Announcement. Neither party shall publicly announce
the terms or existence of this Agreement without the express
written consent of the other party. Either of the parties may
make announcements which are required by applicable law,
regulatory bodies, or stock exchange or stock association rules,
so long as the party so required to make the announcement,
promptly upon learning of such requirement, notifies the other
party of such requirement and discusses with the other party in
good faith the exact wording of any such announcement.
2. AMENDMENT.
2.1 Section 5. The following amendments shall be made to Section 5
of the Existing Agreement:
2.1.1 The following provisions shall be added to the end of
Section 5.1:
Spyglass understands that there may be additions, deletions
or other changes which may affect the Specifications at any
time during the term of any Work Plan and the Term of this
Agreement. Upon notice of any such changes by Microsoft,
Spyglass and Microsoft shall work together to make any
necessary changes to the Specifications, and Spyglass shall
alter the Work and the applicable Work Plan (if necessary)
in order to accommodate any such changes to the
Specifications. Changes within the scope of the Work, as
identified in a Work Plan, shall be made only in writing
executed by both parties. During the term of this
Agreement, Spyglass will use best efforts to accept any new
Work Plan proposed by Microsoft relating to Windows CE and
will use commercially reasonable efforts to accept any
other Work proposed by Microsoft. The parties agree that
it is reasonable for Spyglass to increase its available
personnel (including contractors) by ** per calendar
quarter if necessary to staff Microsoft Work Plans. In the
event Spyglass cannot accept a Work Plan for Windows CE for
any year during the Term (as defined in Section 6.4 below),
in which Spyglass has not invoiced Microsoft more than ***
in Work, then the dollar amount of such proposed Work Plan
shall be *** Microsoft's Minimum Payment obligation for the
applicable year described in Section 6.4, below, except
that such amount shall not be *** if the acceptance of such
Work Plan would require Spyglass to increase the available
personnel (including contractors) by more than *** in any
calendar quarter beginning July 1, 1999. The base
reference number for available personnel shall be the
number of employees and contractors working for Navitel
immediately preceding the Acquisition of Navitel by
Spyglass.
2.1.2 Section 5.8.4 of the Existing Agreement shall be
deleted in its entirety and replaced with the following:
2.1.1 If Spyglass fails to deliver any Deliverable within
the dates specified in a Work Plan and if any Errors
discovered before acceptance cannot be eliminated in
the correction period specified in the Work Plan or in
Exhibit B of this Agreement if no correction period is
specified in the Work Plan, then Microsoft may, at its
option: (i) retain the Deliverable (including any
applicable documentation) with rights as set forth in
Section 3, and pay Spyglass for all outstanding
payment milestones ***; (ii) extend the
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.1.2 correction period; or (iii) suspend its performance
and/or terminate this Agreement or the applicable Work
Plan for cause pursuant to Section 12.3, provided that
Microsoft may not terminate the entire Agreement
unless the failure occurs in a Work Plan valued at
more than *** (other than Work Plan A-1) or the
failure results in the termination of the *** Work
Plan valued at less than ***. Notwithstanding the
foregoing, in the event Microsoft terminates any Work
Plan for cause pursuant to Section 12.3 and the
Agreement remains in effect, the entire value of such
Work Plan shall be *** for the applicable year.
2.1.3 A new Section 5.11 shall be added to the Existing
Agreement:
5.11 Evaluation of Services. Spyglass understands and
agrees that it is obligated under this Agreement to
provide Microsoft with high quality Work at all times
during the term of this Agreement. In addition,
Spyglass shall be responsible for initiating prompt
and detailed communications with the appropriate
Microsoft project leaders regarding any Errors
discovered during the course of development of
software code Deliverables. In the event that any
such Errors are caused by a failure of Spyglass to
provide high quality Work, then Microsoft shall be
entitled (in addition to any other remedies it may
have under this Agreement, at law or in equity) to
***.
2.2 Section 6.
2.2.1 Sections 6.2 and 6.3 shall be deleted in their
entirety and replaced with the following:
2.3 Services. Microsoft agrees to pay Spyglass for work
performed in accordance with the Work Plans based upon
the Personnel Rate Schedule identified in the Work
Plan, provided that Spyglass shall not exceed the
maximum payable amount specified in any Work Plan
without obtaining Microsoft's prior written approval.
6.3 Invoices. Unless otherwise specified in a Work Plan,
Spyglass shall invoice Microsoft by the *** business
day of each month for the amounts due for work
performed under any Work Plan in the prior month.
Billing will be recorded in hourly increments by
project, and any assigned Microsoft Internal Reference
Number, sufficient for Microsoft to determine the
number of hours each engineer worked on any given
Microsoft project on each day. In the event that
Microsoft provides a form to detail Spyglass billings,
Spyglass agrees to utilize such forms as Microsoft may
supply. Microsoft shall pay undisputed invoices ***
of receiving each invoice. Microsoft shall be entitled
to *** Services billed each month, subject to final
approval of the Work associated with such Services
upon completion of the project set forth in the
applicable Work Plan. If Microsoft rejects any Work
pursuant to Section 5.8 above, then Microsoft shall be
entitled, in addition to any other remedies available,
to ***. Invoices shall include reasonable supporting
materials (not including any source code-type
information, which is to be delivered as part of the
Deliverables set forth in the Work Plan) documenting
the Services performed by Spyglass.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
2.2 A new Section 6.4, Section 6.5, Section 6.6, Section
6.7 and Section 6.8 shall be amended to read as follows:
6.4 Minimum Payments. For a period of three (3) years
from the date of this Agreement (the "Term"),
Microsoft agrees that, provided Spyglass performs in
accordance with the terms and conditions of this
Agreement and the Agreement is not otherwise suspended
or terminated, the aggregate yearly payments to
Spyglass shall not fall below the following minimums
("Minimum Payments"):
Year 1: ***
Year 2: ***
Year 3: ***
2.4 Minimum Payment Underage. If at the end of the first
or second year of the Term, Microsoft has not met its
Minimum Payment, then ***. In the event, ***, there
remains a deficiency in the Minimum Payment, Spyglass
may invoice Microsoft for such amount and Microsoft
shall pay such amount pursuant to Section 6.3.
2.5 Minimum Payment Overage. Any amount in excess of the
Minimum Payment for the first or second year of the
Term shall be ***.
2.6 Personnel Rate Schedule Adjustments. The Personnel
Rate Schedule shall increase at a rate of *** per
year, effective April 1st of 2000 and 2001. Beginning
on April 1, 2002, the parties agree to meet annually
to establish the Personnel Rate Schedule for the
upcoming year. Subsequent Personnel Rate Schedule
adjustments shall be effective as of April 1st of the
relevant year (e.g., by May 1, 2002 for the one year
period commencing April 1, 2002 and ending March 31,
2003). In the event that the parties are unable to
agree on a Personnel Rate Schedule adjustment by April
1st of the relevant year, then either party may ***,
with the existing Personnel Rate Schedule remaining in
effect through the date of termination. Any mutually
agreed upon Personnel Rate Schedule, if agreed upon
after April 1st of the relevant year, shall be
retroactive to April 1st of such year.
2.7 Support Work. For a period of *** from the date of
the commercial release of a product containing any
Work, Spyglass agrees to correct Errors identified by
Microsoft in the Work pursuant to the Error correction
schedule in Exhibit B. Microsoft shall pay Spyglass
for such additional Work. This Section 6.8 shall
apply to Work Plan A-1 and any subsequent Work Plans
which explicitly incorporate this Section.
2.8 Section 10. Section 10.1.5 shall be deleted in its entirety and
replaced with the following:
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
10.1.5 All Work (including without limitation all
Deliverables) is original to Spyglass and does not
infringe any copyright, patent, trade secret, or other
proprietary right held by any third party, provided,
however, that this warranty does not apply with regard
to any patent infringement necessitated by compliance
with any Work Plan hereunder unless Spyglass had
knowledge of such infringement;
2.9 Section 12.
2.4.1 Section 12.2 shall be deleted in its entirety.
2.9.1 A new sentence shall be added to the end of Section 12.3 to
read as follows:
A failure to deliver pursuant to Section 5.8.4 above shall
be considered material for purposes of termination of the
applicable Work Plan, but a failure to deliver pursuant to
Section 5.8.4 shall not be considered material for purposes
of termination of this Agreement unless and until such
failure occurs in a Work Plan valued at more than ***
(other than Work Plan A-1) or the failure results in the
termination of the third (or greater) Work Plan valued at
less than ***.
2.10 Exhibit D. The parties agree that the attached Exhibit D shall
replace the Exhibit D attached to the Existing Agreement for
successive Work Plans. The parties believe that all required
personnel for current Microsoft Work Plans are covered by the
current classifications contained in Exhibit D. The parties
agree that in the event any subsequent Work Plan requires
personnel not currently provided for in Exhibit D, the parties
shall negotiate the rates of such personnel in good faith. The
current Exhibit D shall continue to govern Work Plan A-1.
2.5 Work Plan A-1. The parties agree that the "Schedule" Section of
the Work Plan A-1 shall be revised as follows:
The current estimate of the Due Dates and target Deliverables
are as follows:
Date Due Deliverable
*** ***
*** ***
*** ***
*** ***
The Delivery Schedule is subject to change by agreement of both
parties.
3. GENERAL.
3.1 All capitalized terms not otherwise defined in this Agreement
shall have the meanings given in the Existing Agreement.
3.2 This Agreement amends, modifies and supersedes to the extent of
any inconsistencies, the provisions of the Existing Agreement.
Except as expressly amended by this Agreement, the Existing
Agreement is in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as
of the date first written above.
MICROSOFT CORPORATION SPYGLASS, INC.
/s/ Greg Maffei /s/ Gary Vilchick
By (Sign) By (Sign)
Greg Maffei Gary Vilchick
Name (Print) Name (Print)
Chief Financial Officer Executive Vice President & Chief
Financial Officer
Title Title
March 31, 1999 March 31, 1999
Date Date
Reviewed by Microsoft Legal /s/______ 3-31-99
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
EXHIBIT D
PERSONNEL RATE SCHEDULE
As agreed in any applicable Work Plan, Spyglass will charge Microsoft
at the applicable rate specified below for each hour of services
rendered under a Work Plan by the associated Job Title using assigned
Microsoft Internal Reference Numbers, if any.
<TABLE>
<C> <C>
Job Title (Duties) Hourly Rate
General Manager ***
Consulting Manager ***
Architect ***
Project Manager ***
Lead Engineer ***
Engineer ***
QA Manager ***
QA Engineer ***
Technical Document Spec. ***
Systems Adminstration ***
</TABLE>
EXHIBIT 10.29
DEVELOPMENT AND LICENSE AGREEMENT
This Development & License Agreement (this "Agreement") is entered into
and effective as of November __, 1998 (the "Effective Date") by and
between Microsoft Corporation, a Washington corporation located at One
Microsoft Way, Redmond, WA 98052 ("Microsoft") and Navitel
Communications, Inc., a California corporation located at 545 Middlefield
Road, Suite 210, Menlo Park, CA 94025 ("Navitel"). The Agreement
supersedes that certain Joint Development & License Agreement entered
into by Microsoft and Navitel dated July 9,1997 and that certain
Amendment Number 1 to Joint Development & License Agreement entered into
by Microsoft and Navitel dated January 23, 1998 (collectively, the
"Original Agreement").
RECITALS
A. Pursuant to the Original Agreement, Navitel and Microsoft
agreed to develop a software product which combines extensions to the
Windows CE operating system and applications software for an Internet-
enabled telephone (as defined below "Hermes").
B. Navitel and Microsoft wish to terminate the Original Agreement,
restructure their relationship, and clarify ownership of the technology
developed under the Original Agreement.
D. Microsoft desires to have Navitel provide certain development,
support and testing services in connection with Hermes and with
Microsoft's software platform known as "Windows CE," and Navitel desires
to provide such services to Microsoft.
E. Microsoft and Navitel intend that this Agreement supersede the
Original Agreement and serve as a master agreement establishing the basic
terms and conditions under which Navitel will undertake particular
development and testing projects for Microsoft.
AGREEMENT
1. TERMINATION OF THE ORIGINAL AGREEMENT
The parties agree that the Original Agreement is terminated in its
entirety as of the Effective Date. This Agreement supersedes all
terms and conditions of the Original Agreement.
2. DEFINITIONS
For the purposes of this Agreement, the following terms shall have
the following meanings:
2.1 "Approved Expense(s)" shall mean those reasonable and necessary
costs and expenses incurred by Navitel in performing work under this
Agreement that are identified as subject to reimbursement by
Microsoft in a Work Plan or an amendment thereto.
<PAGE>
2.2 "Confidential Information" shall mean: (i) any trade secrets
relating to either party's product plans, designs, costs, prices and
names, finances, marketing plans, business opportunities, personnel,
research development or know-how; (ii) any information designated by
the disclosing party as confidential in writing or, if disclosed
orally, identified at the time of disclosure as being confidential,
or which, under the circumstances surrounding disclosure, ought to
be treated as confidential; and (iii) the terms and conditions of
this Agreement. "Confidential Information" shall not include
information that: (i) is or becomes generally known or available by
publication or otherwise through no fault of the receiving party;
(ii) is known and has been reduced to tangible form by the receiving
party at the time of disclosure and is not subject to restriction;
(iii) is independently developed by the receiving party; ; or
(iv) is made generally available by the disclosing party without
restriction on disclosure.
2.3 "Contractor Agreement" shall have the meaning given in Section
5.7.1.
2.4 "Deliverables" shall mean the items identified as deliverables, to
be delivered by Navitel to Microsoft, as more fully described in a
Work Plan.
2.5 "Derivative Technology" shall mean: (I) for copyrightable or
copyrighted material, any localization, translation (including
translation into other computer languages), portation, modification,
correction, addition, extension, upgrade, improvement, compilation,
abridgment, or other form in which an existing work may be recast,
transformed or adapted; (ii) for patentable or patented material,
any improvement thereon; and (iii) for material which is protected
by trade secret, any new material derived from such existing trade
secret material, including new material which may be protected by
copyright, patent and/or trade secret.
2.6 "Error(s)" shall mean defect(s) in a Deliverable which causes a
Severity Level 1,2, 3 or 4 error, as such errors are defined in
Exhibit B or as specified in a Work Plan.
2.7 "Hermes" shall mean Microsoft's software product for Internet-
enabled telephone devices whose primary purpose is to provide voice
communications for the end-user, which software product consists of
a version of Windows CE and the Hermes Applications.
2.8 "Hermes Applications" shall mean the detailed specifications of
design, functionality and technical implementation for Hermes and
other agreed-upon deliverables, as well as specific acceptance
criteria therefor.
2.9 "Hermes Specifications" shall mean the detailed specifications of
design, functionality and technical implementation for Hermes and
other agreed-upon Deliverables, as well as specific acceptance
criteria therefor.
<PAGE>
2.10 "Hermes Technology" shall mean all Intellectual Property relating to
Hermes developed under or covered by the Original Agreement, other
than the Pre-Existing Technology, including, but not limited to, the
Hermes Applications, Hermes Telephone Card Design, Hermes
Specifications, Test Plan, User Education Plan, and the Hermes
project schedule.
2.11 "Hermes Telephony Card Design" shall mean the hardware design
created for the D9000/ODO platform to provide telephony services for
Hermes. The design includes block diagrams, layout, schematics, and
Printed Circuit Board layout, and support for the line interface,
modem, digital answering machine, hook-switch, speaker phone, and
other functionality required by the reference documentation and
specifications.
2.12 "Intellectual Property" shall mean any copyrights, patents
(including patent improvements), patent applications, patent rights,
trade secrets, or other intellectual property rights (but not
trademarks, trade names or service marks) under applicable law.
2.13 "Microsoft Internal Reference Number" shall mean a unique number
that may be assigned by Microsoft to each general project undertaken
by Navitel hereunder pursuant to the applicable Work Plan, which
number shall be used to track and record the hours worked by each
Navitel employee assigned to such Work Plan.
2.14 "Microsoft Materials" shall have the meaning designated in the
applicable Work Plan.
2.15 "Navitel HermesTechnology" shall mean that portion of the Hermes
Technology assigned by Navitel to Microsoft pursuant to Sections
3.2, 3.3 and 3.4 below.
2.16 "Original Agreement" shall mean the Joint Development & License
Agreement executed by Microsoft and Navitel on July 9, 1997, as
amended by the Amendment Number 1 to Joint Development & License
Agreement entered into by Microsoft and Navitel dated January 23,
1998.
2.17 "Personnel Rate Schedule" shall mean that document attached to and
made a part of this Agreement as Exhibit D, setting forth the hourly
rates at which Microsoft shall pay Navitel for Services under this
Agreement.
2.18 "Pre-Existing Technology" shall mean the Intellectual Property in
and to the Technology described on Exhibit C, attached hereto,
developed by Navitel prior to the execution of the Original
Agreement and not, in any way, used or referred to in the
development of the Hermes Technology.
2.19 "Schedule" shall mean the schedule for completion of the Services
and delivery of the Deliverables contained in a Work Plan.
2.20 "Services" shall mean the design and development of the Work in
accordance with a Work Plan and Specifications.
2.21 "Specifications" means the specifications for the Services, as more
fully described in the applicable Work Plan.
<PAGE>
2.22 "Technology" shall mean computer code in object or source code form,
plans, specifications, schemataics, ideas, know-how, techniques or
any other technology.
2.23 "Test Hardware" shall mean all of the hardware provided to Navitel
by Microsoft, or on behalf of Microsoft, for the limited purpose of
testing and developing the Work pursuant to a Work Plan and this
Agreement.
2.24 "Test Plan" shall mean the documentation which defines the
requirements for testing specific functionalities of the Hermes
software deliverables to ensure that they meet the Hermes
Specifications, and lists and defines the tests that must be done to
ensure that a tested functionality is covered completely.
2.25 "User Education Plan" shall mean the documentation that outlines
(schedules) the prototyping and usability testing for verification
of the model for user assistance, including printed and electronic
documentation, on-screen help dialogs and text, and localization
strategy.
2.26 "Windows CE" shall mean the Microsoft software platform known as
MicrosoftR WindowsR CE.
2.27 "Work" shall mean the work completed by Navitel for Microsoft, as
more fully described in the Specifications.
2.28 "Work Plan" means a detailed description of Services to be performed
by Navitel, including cost, delivery dates and Specifications.
Services shall be detailed in a separate Work Plan. Work Plans
shall be in the form attached hereto as Exhibit A, and shall be
signed by both parties, consecutively numbered (i.e. Work Plan A-1,
A-2, A-3, etc.) and attached to and made a part of this Agreement.
3. HERMES TECHNOLOGY.
3.1 Ownership. Microsoft shall own all Hermes Technology, including
but not limited to, all Hermes Technology developed by Navitel or
any third parties on behalf of Navitel.
3.2 Assignment. Navitel hereby assigns to Microsoft all of its right,
title and interest in and to the Hermes Technology. Such
assignments include, without limitation, the following:
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
3.2.1 *** that Navitel may possess or acquire in the Hermes
Technology and *** and equivalent rights in the Hermes
Technology ***, including all renewals and extensions of such
rights that may be secured under the laws now or hereafter in
force and effect in the United States of America or in any
other country or countries;
3.2.2 *** rights in and to the *** Hermes Technology or
developed in the course of Navitel's creation of the Hermes
Technology, including but not limited to *** regardless of
whether or not legal protection for the Hermes Technology is
sought;
3.2.3 The right to prepare Derivative Technology of the Hermes
Technology with exclusive rights to authorize others to do the
same;
3.2.4 Copies of any documents, magnetically or optically encoded
media, or other materials created by Navitel under the Original
Agreement; and
3.2.5 The right to sue for infringements of the Hermes
Technology which may occur before the date of this Agreement,
and to collect and retain damages from any such infringements.
3.3 Assignment/Waiver of Moral Rights. Navitel hereby irrevocably
transfers and assigns to Microsoft any and all "moral rights" that
Navitel may have in the Hermes Technology and Derivative Technology
thereof. Navitel also hereby forever waives and agrees never to
assert any and all "moral rights" it may have in the Hermes
Technology and Derivative Technology thereof, even after termination
of this Agreement and any related Work.
3.4 Assistance. Navitel shall execute and deliver such instruments and
take such other action as may be requested by Microsoft to perfect
or protect Microsoft's rights in the Hermes Technology and to carry
out the assignments effected by this Section 3, and assist Microsoft
and its nominees in every proper way to secure, maintain, protect
and defend for Microsoft's own benefit all such rights in the Hermes
Technology in any and all countries. Navitel shall cooperate with
Microsoft in the filing and prosecution of any copyright or patent
applications that Microsoft may elect to file on the Hermes
Technology or inventions and designs relating to the Hermes
Technology.
3.5 License to Hermes Telephony Card Design. Microsoft grants Navitel a
worldwide, nonexclusive, perpetual, *** right to (1) make, use,
copy, modify, and create Derivative Technology of the Hermes
Telephony Card Design; (2) publically perform or display, import,
broadcast, transmit, distribute, license, offer to sell, and sell,
rent, lease or lend copies of the Hermes Telephony Card Design (and
Derivative Technology thereof); and (3) sublicense to third parties
the foregoing rights, including the right to sublicense to further
third parties.
<PAGE>
4. PRE-EXISTING TECHNOLOGY
Navitel hereby grants to Microsoft a perpetual, nonexclusive,
worldwide, ***, license under any patents covering its Pre-Existing
Technology to the extent necessary to combine any of the Hermes
Technology and the Work with any hardware or software.
5. WORK
5.1 Services. Navitel shall perform the Services in accordance with the
applicable Work Plan and pursuant to the Specifications. The parties
agree to discuss in good faith issues that may arise in performance
of the work tasks associated with each Work tasks associated with
each Work Plan, including any issues regarding compliance with the
timing of Deliverables set forth in the Work Plan.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
5.2 Status Reports. Navitel shall provide to Microsoft a current and
accurate monthly status report, in a form reasonably acceptable to
Microsoft, detailing the status of each project covered in the Work
Plan, including current budget tracking and assessment of ability to
meet project milestones. Navitel shall also provide such additional
status reports regarding work in progress as the Microsoft project
manager may reasonably request from time to time.
5.3 Personnel Rate Schedule. Navitel shall have on its staff, at the
levels and at the rates specified in Exhibit D, trained and
experienced personnel that primarily are dedicated to and available
for the Microsoft projects set forth in the Work Plans.
5.4 Personnel Adjustments. Navitel shall use its best efforts to ensure
that personnel providing Services under this Agreement (i) are
available to work on additional Work Plans which are similar to
those for which they have provided Services previously and (ii) are
not unnecessarily and inefficiently moved between Work Plans in
progress. Navitel shall consult with Microsoft when establishing
and changing the project teams assigned to each Work Plan. Navitel
will ensure that its engineering team working on Windows CE related
projects shall be working exclusively on Windows CE. Unless
otherwise specified in a Work Plan, Navitel shall not ***.
5.5 Personnel on Microsoft Campus. The Navitel personnel may be located
at the Microsoft premises to further the objectives of the
development and testing activities described in this Agreement.
Navitel acknowledges that its personnel will be required to execute
Microsoft's standard agreements for email and security card access.
Navitel is not authorized to use, and agrees that it shall not use
its location on the Microsoft campus, or its access to Microsoft
employees or facilities, to obtain information or materials from
sources at Microsoft, other than as expressly authorized by
Microsoft. For example, although Navitel employees will be given
security card access to select facilities at Microsoft, it is
Microsoft's intent to grant access to only the office space
allocated to Navitel and such other spaces as may, from time to
time, be designated by Microsoft. It is not Microsoft's intent to
grant Navitel employees full access to all areas of the Microsoft
premises accessible by security card or to other floors of such
premises. Navitel agrees to direct its employees not to access
areas of the Microsoft premises other than those specifically
designated by Microsoft. Navitel employees shall abide by all
Microsoft rules, regulations, and security measures while present at
Microsoft site.
5.6 Microsoft Materials License Grant. Microsoft hereby grants Navitel a
non-exclusive, limited license in the Microsoft Materials for
internal use only as necessary to create the Deliverables. Nothing
herein shall be deemed to be an assignment to Navitel of any right,
title and interest in the Microsoft Materials. All rights not
expressly granted herein are expressly reserved by Microsoft.
5.7 Contractors.
Navitel may disclose the Microsoft Materials to a third party
contractor and employ such contractor as a third party contractor of
Navitel to use such Microsoft Materials in accordance with this
Agreement, provided that Navitel complies with all of the following:
5.7.1 Navitel and its contractor enter into a written agreement
(hereinafter "Contractor Agreement") that expressly provides
that Microsoft is a third party intended beneficiary of the
Contractor Agreement with rights to enforce such agreement, and
that requires contractor:
5.7.1.1 to comply with obligations identical to those
imposed on Navitel by this Agreement;
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
5.7.1.2 to cease all reference to, and to return all full or
partial copies of, the Microsoft Materials upon
notice from Navitel or Microsoft of the termination
or expiration of this Agreement; and
5.7.1.3 to pay Microsoft's or Navitel's attorneys' fees if
Navitel or Microsoft employs attorneys to enforce
any rights arising out of the Contractor Agreement;
5.7.2 Navitel guarantees its contractors' fulfillment of the
applicable obligations imposed on Navitel by this Agreement;
5.7.3 Navitel hereby indemnifies Microsoft with respect to any
and all damages of any kind, without limitation, caused by
unauthorized reproduction and/or distribution of any portion of
the Microsoft Materials by any such contractor or by any other
breach of the Contractor Agreement by any such contractor; and
5.7.4 Navitel notifies Microsoft of the name and address of any
contractor with which Navitel intends to enter into a
Contractor Agreement before execution of such agreement, and
Microsoft approves in writing such contractor. Navitel's
notice to Microsoft shall also include a written summary of the
terms of any such Contractor Agreement(s), including: the
specific activity to be performed by the contractor; the
quantities involved; the term of the agreement with the
contractor; and such samples as Microsoft may reasonably
request of the work product of the contractor. Navitel shall
promptly notify Microsoft of the termination, expiration or
significant modification of the terms of such Contractor
Agreement(s).
5.8 Acceptance.
5.8.1 Microsoft shall evaluate each Deliverable and *** business
days after Microsoft's receipt of any preliminary version and
*** after receipt of the final version of the Deliverable.
Acceptance shall be in writing, and Microsoft shall not
unreasonably withhold its acceptance. If Microsoft identifies
Errors in a Deliverable *** days following receipt of notice
thereof ***.
5.8.2 For documentation or report Deliverables, Microsoft shall
evaluate each version of such Deliverable. In the event that it
requires corrections, Microsoft shall specify the corrections
needed and Navitel shall deliver an amended version of such
documentation within *** working days.
5.8.3 Navitel shall use all reasonable commercial efforts to
complete and deliver the Deliverables set forth in a Work Plan
to Microsoft, according to the applicable Schedule provided in
such Work Plan. Additional information, reports, documentation
and the like regarding the Services shall be provided by
Navitel to Microsoft upon the reasonable request of Microsoft.
Navitel shall promptly raise with Microsoft any issues that
arise (or which Navitel reasonably foresees arising) regarding
the quality or performance of the Deliverables set forth in the
Work Plan, as well as any deviation from the applicable Work
Plan for such Deliverables. The parties shall use all
reasonable efforts to promptly address any such issues that may
arise, including the establishment of an appropriate recovery
plan to the extent required.
5.8.4 If Navitel fails to deliver any Deliverable within the
dates specified in the Work Plan, and if any Errors discovered
before acceptance cannot be eliminated in the correction period
specified in the Work Plan or in Exhibit B if no correction
period is specified in the Work Plan, then Microsoft may, at
its option: (i) retain the Deliverable (including any
applicable documentation) with rights as set forth in Section
3, and pay Navitel for all outstanding payment milestones for
which Microsoft has accepted corresponding Deliverables, with
no further development fee to be paid to Navitel thereafter;
(ii) extend the correction
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
period; or (iii) suspend its performance and/or terminate this
Agreement for cause pursuant to Section 12.2.2.
5.9 Design Review & Specifications Changes. Navitel understands that
there may be additions, deletions or other changes which may affect
the Specifications at any time during the term of any Work Plan and
this Agreement. Upon notice of any such changes by Microsoft,
Navitel and Microsoft shall work together to make any necessary
changes to the Specifications, and Navitel shall alter the Services
and the applicable Work Plan (if necessary) in order to accommodate
any such changes to the Specifications.
5.10 ***. Except for Work Plan A-1, Microsoft shall have the right to
***. In the event that Microsoft ***prior to completion of Services
under that Work Plan, Microsoft shall retain any and all Work
existing in whatever form at the *** of the applicable Work Plan
(including any applicable documentation) with rights as set forth in
Section 3, and pay Navitel for all outstanding payment milestones
applicable to the retained Work, ***. Upon the *** completion of any
Work Plan, Navitel shall return all Microsoft Materials applicable
to such Work Plan within *** days of receipt of ***.
6. PAYMENT.
6.1 Hermes Technology; Derivative Technology of Pre-Existing Technology.
The parties agree that Navitel has received complete and final
payment in consideration for the assignments and licenses provided
in this Agreement. No further payment shall be due Navitel under
this Agreement unless specifically provided for in Work Plans to
this Agreement executed by the parties.
6.2 Services. Microsoft agrees to pay Navitel for work performed in
accordance with the Work Plans based upon the Personnel Rate
Schedule and for any Approved Expenses identified in the Work Plan,
provided that (i) Navitel has completed and delivered all
corresponding Deliverables; (ii) Microsoft has accepted such
Deliverables; and (iii) Navitel shall not exceed the maximum payable
amount specified in any Work Plan without obtaining Microsoft's
prior written approval.
6.3 Invoices. Unless otherwise specified in a Work Plan, Navitel shall
invoice Microsoft by the fifth business day of each month for the
amounts due for work performed under any Work Plan in the prior
month. Billing will be recorded in hourly increments by project, and
any assigned Microsoft Internal Reference Number, sufficient for
Microsoft to determine the number of hours each engineer worked on
any given Microsoft project on each day. In the event that
Microsoft provides a form to detail Navitel billings, Navitel agrees
to utilize such forms as Microsoft may supply. Microsoft shall pay
each invoice within thirty (30) days of receiving each invoice,
provided that Microsoft has accepted the Deliverable described in
the invoice. Microsoft shall be entitled to conditionally accept
Services billed each month, subject to final approval of the Work
associated with such Services upon completion of the project set
forth in the applicable Work Plan. If Microsoft rejects any Work
pursuant to Section 5.8 above, then Microsoft shall be entitled, in
addition to any other remedies available, to deduct an amount from
any subsequent invoice equal to the amount Microsoft previously paid
for the rejected Work or portion thereof. Invoices shall include
reasonable supporting materials (not including any source code-type
information, which is to be delivered as part of the Deliverables
set forth in the Work Plan) documenting the Services performed by
Navitel.
7. RIGHTS TO DELIVERABLES
7.1 Work Made For Hire. The Work has been specially ordered and
commissioned by Microsoft. Navitel agrees that the Work is a "work
made for hire" for copyright purposes, with all copyrights in the
Work owned by Microsoft.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
7.2 Assignment. To the extent that the Work does not qualify as a work
made for hire under applicable law, and to the extent that the Work
includes material subject to copyright, patent, trade secret, or
other proprietary right protection, Navitel ***, including, but not
limited to:
7.2.1 *** that Navitel may possess or acquire in the Work ***,
including all renewals and extensions of such rights that may
be secured under the laws now or hereafter in force and effect
in the United States of America or in any other country or
countries;
7.2.2 *** rights in and to ***, including but not limited to ***
regardless of whether or not legal protection for the Work is
sought;
7.2.3 The right to prepare Derivative Technology with exclusive
rights to authorize others to do the same;
7.2.4 Copies of any documents, magnetically or optically
encoded media, or other materials created by Navitel under
this Agreement; and
7.2.5 The right to sue for infringements of the Work which may
occur before the date of this Agreement, and to collect and
retain damages from any such infringements.
7.3 Assistance. At Microsoft's expense, Navitel shall execute and
deliver such instruments and take such other action as may be
requested by Microsoft to perfect or protect Microsoft's rights in
the Work and to carry out the assignments set forth in this Section
7.
7.4 Assignment/Waiver of Moral Rights. Navitel hereby irrevocably
transfers and assigns to Microsoft any and all "moral rights" that
Navitel may have in the Work and Derivative Technology thereof.
Navitel also hereby forever waives and agrees never to assert any
and all "moral rights" it may have in the Work and Derivative
Technology, even after termination of the Services.
8. NO OBLIGATION/INDEPENDENT DEVELOPMENT
Notwithstanding any other provision of this Agreement, Microsoft
shall have no obligation to market, sell or otherwise distribute
Hermes, the Hermes Applications or any Work, either alone or in any
Microsoft product. Except as provided in Section 9, nothing in this
Agreement will be construed as restricting Microsoft's ability to
acquire, license, develop, manufacture or distribute for itself, or
have others acquire, license, develop, manufacture or distribute for
such party, similar technology performing the same or similar
functions as the technology contemplated by this Agreement, or to
market and distribute such similar technology in addition to, or in
lieu of, the technology contemplated by this Agreement.
<PAGE>
9. CONFIDENTIALITY
9.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that
such party uses to protect its own like information. Neither party
will use the other's Confidential Information for purposes other
than those necessary to directly further the purposes of this
Agreement. Neither party will disclose to third parties the other's
Confidential Information without the prior written consent of the
other party. Except as expressly provided in this Agreement, no
ownership or license rights are granted in any Confidential
Information.
9.2 Each party acknowledges that monetary damages may not be a
sufficient remedy for unauthorized disclosure of Confidential
Information and that, in the event of such unauthorized disclosure,
the non-breaching party shall be entitled, without waiving any other
rights or remedies, to such injunctive or equitable relief as may be
deemed proper by a court of competent jurisdiction.
9.3 The parties' obligations of confidentiality under this Agreement
shall not be construed to limit either party's right to
independently develop or acquire products without use of the other
party's Confidential Information.
10.WARRANTIES
10.1 Navitel. Navitel warrants and represents that:
10.1.1 It has the full power to enter into this Agreement and
make the assignments and license rights set forth herein;
10.1.2 It has not previously and will not grant any rights to any
third party that are inconsistent with the rights granted to
Microsoft herein;
10.1.3 All Navitel Hermes Technology shall not infringe any
copyright or misappropriate any trade secret held by any third
party;
10.1.4 All Navitel Hermes Technology, as of the Effective Date
shall not, to Navitel's knowledge without any duty to
investigate, infringe any patent held by any third party;
10.1.5 All Work (including without limitation all Deliverables)
is original to Navitel and does not infringe any copyright,
patent, trade secret, or other proprietary right held by any
third party;
10.1.6 All Navitel Hermes Technology and all Work (including
without limitation all Deliverables), has been or will be
created by employees of Navitel within the scope of their
employment and under obligation to assign inventions to
Navitel, or by independent contractors under written
obligations to assign all rights in such Hermes Technology or
Work to Navitel;
10.1.7 Neither Navitel's execution nor performance of this
Agreement will result in a breach of any other agreement or
obligation by which Navitel is bound; and
10.1.8 The Services shall be performed in a professional manner
and shall be of a high grade, nature, and quality.
10.2 Microsoft. Microsoft warrants and represents that:
10.2.1 It has the full power to enter into this Agreement and
make the assignments and license rights set forth herein; and
10.2.2 It has not previously and will not grant any rights to any
third party that are inconsistent with the rights granted to
Navitel herein.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
11. INDEMNITY
11.1 Indemnity.
11.1.1 Navitel shall, at its expense, defend, indemnify and hold
harmless Microsoft and Microsoft's subsidiaries, affiliates,
directors, officers, employees, agents and independent
contractors from any and all costs, damages, liabilities and
fees reasonably incurred by Microsoft, including but not
limited to fees of attorneys and other professionals, with
respect to any claim or action arising out of or in any way
related to a breach by Navitel of this Agreement, including
without limitation of the warranties and representations set
forth in Section 10 above; provided that: (i) Microsoft
provides Navitel reasonably prompt notice in writing of any
such claim or action and permits Navitel, through counsel
mutually acceptable to Microsoft and Navitel, to answer and
defend such claim or action; (ii) Microsoft provides Navitel
information, assistance and authority, at Navitel's expense and
reasonable request, to help Navitel defend such claim or
action; and (iii) Navitel will not be responsible for any
settlement made by Microsoft without Navitel's written
permission, which permission will not be unreasonably withheld.
11.1.2 Microsoft shall have the right to employ separate counsel
and participate in the defense of any claim or action. Navitel
shall reimburse Microsoft upon demand for any payments made or
losses suffered by it at any time after the date hereof, based
upon the judgment of any court of competent jurisdiction or
pursuant to a bona fide compromise or settlement of claims,
demands, or actions, in respect to any damages related to any
claim or action under this Section 11.
11.1.3 Navitel may not settle any claim or action under this
Section 11 on Microsoft's behalf without first obtaining
Microsoft's written permission, which permission will not be
unreasonably withheld. In the event Microsoft and Navitel
agree to settle a claim or action, Navitel agrees not to
publicize the settlement without first obtaining Microsoft's
written permission, which permission will not be unreasonably
withheld.
11.2 Duty to Correct. Notwithstanding Section 11.1, should the Navitel
Hermes Technology, the Work or any portion thereof be held to
constitute an infringement and use of the Navitel Hermes Technology,
the Work or any portion thereof as contemplated by this Agreement be
enjoined or be threatened to be enjoined, Navitel shall notify
Microsoft and immediately, at Navitel's expense: (i) procure for
Microsoft the right to continue use, sale, and marketing of the
Navitel Hermes Technology, the Work, or portion thereof, as
applicable; or (ii) replace or modify the Navitel Hermes Technology,
the Work, or portion thereof, with a version that is non-infringing,
provided that the replacement or modified version meets the
specifications in the applicable Work Plan to Microsoft's
satisfaction. If (i) or (ii) are not available to Navitel, in
addition to any damages or expenses reimbursed under Section 11.1,
***.
<PAGE>
12.TERM AND TERMINATION
12.1 Term. The term of this Agreement shall commence as of the Effective
Date and shall continue until terminated as provided in this
Section 12.
12.2 Termination by Microsoft.
12.2.1 After June of 1999 Microsoft may terminate this Agreement
for any reason by providing Navitel thirty (30) days prior
written notice.
12.2.2 Microsoft shall have the right to cancel any Work Plan,
other than Work Plan A-1, with or without cause by providing
Navitel with written notice of such cancellation. Upon receipt
of such notice, Navitel will discontinue all work thereunder.
Except in cases of termination for cause, Microsoft will pay
for all work performed by Navitel up until the date of receipt
of the cancellation notice. In the event of cancellation upon
request by Microsoft, Navitel agrees to turn over to Microsoft
all work in progress within ten (10) days.
12.3 Termination By Either Party For Cause. Either party may suspend
performance and/or terminate this Agreement and/or any Work Plan,
including Work Plan A-1, immediately upon written notice at any time
if:
12.3.1 The other party is in material breach of any material
warranty, term, condition or covenant of this Agreement and/or
applicable Work Plan, other than those contained in Section 9,
and fails to cure that breach within thirty (30) days after
written notice thereof; or
12.3.2 The other party is in material breach of Section 9.
12.4 Effect of Termination.
12.14.1 In the event of termination or expiration of this
Agreement or any Work Plan for any reason, Sections 1,2, 3, 4,
7, 8, 9, 10, 11, 12, 13 and 14 shall survive termination.
Neither party shall be liable to the other for damages of any
sort resulting solely from terminating this Agreement in
accordance with its terms. Any assignments, licenses or
sublicenses already granted by Navitel or Microsoft under this
Agreement shall not be affected by any termination of this
Agreement and shall remain in full force and effect.
12.14.2 Return of Materials. Upon termination of this Agreement,
Navitel shall return all Microsoft Materials and or Microsoft
Confidential Information in Navitel's possession or under its
control within ten (10) days following the termination date.
Navitel shall take all necessary steps to ensure that
electronic copies of such Microsoft Materials and other
Microsoft Confidential Information are not retained by Navitel
or its employees. Navitel shall provide a declaration signed by
an officer of Navitel attesting that all copies of Microsoft
Materials and Microsoft Confidential Information and related
materials have been returned to Microsoft and/or destroyed.
<PAGE>
13. LIMITATION OF LIABILITIES
13.1 NEITHER PARTY SHALL BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, EVEN IF SUCH PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
13.2 THIS PROVISION HAS NO APPLICATION TO SECTIONS 5.6, 9 AND 11.
14. GENERAL
14.1 Notices. All notices and requests in connection with this Agreement
shall be deemed given as of the day they are received either by
messenger, delivery service, or in the United States of America
mails, postage prepaid, certified or registered, return receipt
requested, and addressed as follows:
To Navitel: To Microsoft:
Navitel Communications, Inc. Microsoft Corporation
545 Middlefield Road, Suite 210 One Microsoft Way
Redmond, WA 98052-6399
Menlo Park, CA 94025 Attention: Vice President,
Attention: Jeff Spirer Consumer Appliance Group
Phone: 415-462-9171 Phone: 425-936-5213
Fax: 415-462-9174 Fax: 425-936-7329
Copy to: Copy to:
James M. Burger Law & Corporate Affairs
Dow, Lohnes & Albertson, PLLC Fax: (425) 936-7409
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036-6802
Fax: 202-776-2222
or to such other address as a party may designate pursuant to this
notice provision.
14.2 Independent Contractors. Navitel is an independent contractor for
Microsoft, and nothing in this Agreement shall be construed as
creating an employer-employee relationship, a partnership, or a
joint venture between the parties.
14.3 Taxes. In the event taxes are required to be withheld on payments
made under this Agreement by any U.S. (state or federal) or foreign
government, the paying party may deduct such taxes from the amount
owed the receiving party and pay them to the appropriate taxing
authority. The paying party shall in turn promptly secure and
deliver to the receiving party an official receipt for any taxes
withheld. The paying party will use reasonable efforts to minimize
such taxes to the extent permissible under applicable law.
<PAGE>
14.4 Governing Law. This Agreement shall be governed by the laws of the
State of Washington as though entered into between Washington
residents and to be performed entirely within the State of
Washington, and Navitel consents to jurisdiction and venue in the
state and federal courts sitting in the State of Washington. In any
action or suit to enforce any right or remedy under this Agreement
or to interpret any provision of this Agreement, the prevailing
party shall be entitled to recover its costs, including reasonable
attorneys' fees.
14.5 Assignment. This Agreement shall be binding upon and inure to the
benefit of each party's respective successors and lawful assigns.
Neither party may assign this Agreement, without the prior written
approval of the other party,
14.6 Construction. If for any reason a court of competent jurisdiction
finds any provision of this Agreement, or portion thereof, to be
unenforceable, that provision of the Agreement will be enforced to
the maximum extent permissible so as to effect the intent of the
parties, and the remainder of this Agreement will continue in full
force and effect. Failure by either party to enforce any provision
of this Agreement will not be deemed a waiver of future enforcement
of that or any other provision. This Agreement has been negotiated
by the parties and their respective counsel and will be interpreted
fairly in accordance with its terms and without any strict
construction in favor of or against either party.
14.7 Entire Agreement. This Agreement does not constitute an offer by
Microsoft and it shall not be effective until signed by both
parties. This Agreement constitutes the entire agreement between
the parties with respect to the subject matter hereof and merges and
supersedes all prior and contemporaneous communications (including
without limitation the OEM Development and Testing Agreement between
the parties dated as of August 20, 1996 and the Original Agreement).
It shall not be modified except by a written agreement dated
subsequent to the date of this Agreement and signed on behalf of
Navitel and Microsoft by their respective duly authorized
representatives. This Agreement may be executed by the parties in
counterparts.
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the Effective Date written above.
MICROSOFT CORPORATION NAVITEL COMMUNICATIONS, INC.
/s/ Craig Mundie /s/ Jeff Spirer
By (Sign) By (Sign)
Craig Mundie Jeff Spirer
Name (Print) Name (Print)
SVP COO
Title Title
11/23/98 11/16/98
Date Date
/s/ DMB Legal
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
WORK PLAN A-1
HERMES MILESTONES 4 AND 5 & RELEASE CANDIDATE
Project Description
The overall scope of the project is the development of the Hermes
Technology and related Deliverables for the purpose of enabling
Microsoft's OEMs to create devices running Hermes.
Microsoft will provide overall project direction, feature direction and
on-going input. Microsoft will create functional and behavior
specifications for the features to be developed by providing the feature
list, and providing feedback and direction to Navitel on preliminary
specifications prepared by Navitel.
Work Specifications
The Hermes project follows the milestone development process - the
project schedule is divided into development milestones with associated
testing activity. For each milestone the key features are identified,
specified, implemented, tested and delivered to customers. Each
milestone has an associated set of Deliverables and Services.
Milestone 4 ("M4") - The work currently being completed in Milestone 4,
also known as ***of the Hermes Development Schedule ("***"). The M4
features include the following: ***.
Milestone 5 ("M5") The work currently scheduled to be completed and
delivered in M5 is described in the Hermes Project Development Schedule,
as modified from time to time by Microsoft. The currently scheduled
features for M5 Hermes *** include: *** and Hermes ***.
Milestone 6 ("M6") - Milestone 6 is the work to be scheduled following
the completion of M5 and initial product RTM. The anticipated high
priority features for M6 include ***. Part of the M6 milestone ***.
Services and Deliverables
Planning Deliverables
Project Schedule - Overall project schedule for designing, implementing,
testing, supporting and documenting the Hermes technology and related
deliverables.
Hermes Feature List - The detailed list of software features and
functionality to be implemented in the Hermes software release.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Hermes Deliverables List - The complete list of all deliverables related
to a specific Hermes release, including specifications, plans, software,
documentation, tests, and other such deliverables as may be agreed upon
by Microsoft and Navitel.
Work Items - The list of work items and tasks for each of the functional
areas required to perform the Services specified by the detailed
Specification, Feature list and Deliverables List. Work items should be
identified such that the granularity is on the order of a person/week, so
that the development schedule can be managed and tracked on a weekly
basis.
Development Schedule - The development schedule for a specific Hermes
release, identifying all the development work items associated required
to implement functionality in the Hermes Feature List. Organized in PERT
form by developer, indicating dependencies, key deliverables and
milestones, updated on a bi-weekly basis. Microsoft shall determine the
major milestones and implementation priority with input from Navitel.
Milestone Post-mortem Report - A roll-up summary of the postmortem
reports from each functional area and summary of postmortem meeting which
shall identify the top 10 process improvements to be implemented in the
subsequent milestones, the top 10 critical issues in each functional
area, the top 10 things that worked well, and any other topics that may
arise during the generation of the Milestone Post-mortem Report or as may
be requested by Microsoft.
Development Deliverables
Project Source Code - For each milestone, the development Deliverables
include the entire source tree necessary to build the project, including
binaries and other components delivered to third parties.
Hermes Adaptation Kit
Hermes Adaptation Kit ("HAK") _The collection of software and documents
delivered to OEMs and other third parties to enable the design,
development and testing of Hermes-compatible hardware designs, software
drivers, applications, hardware peripherals and other related products.
HAK Support Services
Ongoing technical support to third parties developing products with the
HAK.
Test Deliverables
Hermes Test Kit - The *** other test deliverables required to test and
certify the Hermes deliverables.
Test Status Report - Weekly summary of testing status - ***, and other
such information appropriate and as may be requested by Microsoft.
Milestone Test Summary Report - Summary report for each development
milestone indicating ***, and other such information as Microsoft may
request.
Hermes Documentation Deliverables
Hermes Documentation Plan - Overall plan and approach for creating the
Hermes documentation, including user manual, help, error messages and
other user education elements.
Hermes User Manual - The user manual shall be created in accordance with
Microsoft design guidelines and supplied to OEMs for incorporation in to
their user manuals.
Final Specifications and Design Documentation
Hermes Specification - the collection of documents that describe the
requirements, design, specifications, behavior, functionality,
architecture, implementation, schedule, testing and support of the Hermes
release, including software applications, OS and OS extensions and
hardware.
Microsoft Materials
For purposes of this Work Plan, Microsoft Materials shall mean materials
delivered by Microsoft to Navitel, in its discretion, which may include
any or all the following: (i) Windows CE source code, (ii) Windows CE
application source code, (iii) source code for other products within the
Windows family as determined by Microsoft to be necessary or desirable;
(iv) documentation, and (v) other Technology.
Schedule
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
<PAGE>
Confidential Materials omitted and filed separately with the
Securities and Exchange Commission. Asterisks denote omissions.
Navitel will commence the Services as of the Effective Date and complete
all Services and deliver all Deliverables no later ***. Navitel will
provide Microsoft with the Deliverables according to the following
delivery schedule:
Date Due Deliverable
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
*** ***
The Delivery Schedule is subject to change by agreement by both parties.
Expected Staffing Level Requirements
During the course of this Work Plan, the Navitel team focused on Hermes
is anticipated to include the following:
*** Project Manager / Development Manager
*** OEM Program Managers
***Engineers split between Applications, OS and Hardware
***Test/QA Manager
***Testers/Test Engineers
*** Designer
*** Network Administrator / Build Engineer
The composition of the Navitel development team may change over time
assuming that such change is driven by Microsoft requirements or request
in response to customers. The exact functional division and individual
membership is less important than that the collective team meets the
projected needs of the agreed upon feature list and schedule.
Payment
For the Work completed by Navitel pursuant to this Work Plan A-1,
Microsoft shall pay to Navitel an advance of *** to be applied against
and recouped from future payments due by Microsoft to Navitel (the
"Advance"). The Advance shall be paid
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
by wire transfer within *** days of the Effective Date of this Work Plan.
The Advance shall be offset against payments otherwise due Navitel by
Microsoft under this Work Plan by *** each month for each of April, May
and June of 1999 ("Repayment Months"). In the event Microsoft owes
Navitel less than *** in any Repayment Month, any remainder shall be
carried forward and applied against and recouped from the following
month. In the event Navitel is in receipt of any unearned portion of the
Advance upon termination or expiration of this Work Plan or of the
Agreement, Navitel shall immediately return such unearned portion of the
Advance to Microsoft within *** days of such termination or expiration.
<PAGE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
Notwithstanding Section 6.3 of the Agreement, Navitel shall submit an
invoice within *** days following the last day of each calendar month for
Work completed under this Work Plan. Each invoice shall be sufficiently
detailed to indicate the number of hours worked by each employee on each
Deliverable, tasks completed or in process, and such other detail as
Microsoft may request.
Payment for the Services shall not *** in total, and *** per calendar
month.
Navitel shall be solely responsible for any expenses incurred in the
performance of the Services under this Work Plan, however the following
may be Approved Expenses, subject to Microsoft prior written approval.
MS Requested Travel / Entertainment
Should Microsoft request that Navitel travel for the purposes of
supporting Hermes, including but not limited to OEM site visits,
trade-shows, conferences and sales or marketing meetings. This
should not apply to Navitel executive travel, nor travel related to
maintaining the business relationship.
MS Requested Equipment
Equipment expenditures solely related to Hermes development, such as
D-9000 development boards, Hermes Telephony Cards, servers, D-9000
upgrades, Flash/memory chips, HODO components, etc. Microsoft should
approve such expenditures in writing or e-mail prior to Navitel
purchase..
<PAGE>
THE FOREGOING WORK PLAN A-1 IS AGREED TO AND ACCEPTED BY THE PARTIES:
MICROSOFT CORPORATION NAVITEL COMMUNICATIONS, INC.
/s/Craig Mundie /s/ Jeff Spirer
By (Sign) By (Sign)
Craig Mundie Jeff Spirer
Name (Print) Name (Print)
SVP COO
Title Title
11/23/98 Nov 16 1998
Date Date
<PAGE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
EXHIBIT B
MAINTENANCE PROBLEM SEVERITY AND RESOLUTIONS
Severity Criteria Time Limit
1 Critical: Problem which prevents or seriously ***
impairs the performance of substantially all major
functions.
2 Severe Impact: Problem which prevents or ***
seriously impairs the performance of a major function.
3 Degraded Operation: Problem which disables or ***
seriously impairs the performance of a minor function.
4 Trivial: Problem which disables or impairs the ***
performance of a minor function.
<PAGE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
EXHIBIT C
PRE-EXISTING TECHNOLOGY
Navitel ***
Navitel ***
Navitel ***:
***
***
***
***
***
***
Navitel ***.
<PAGE>
Confidential Materials omitted and filed separately with the Securities
and Exchange Commission. Asterisks denote omissions.
EXHIBIT D
PERSONNEL RATE SCHEDULE
Navitel will charge Microsoft at the applicable rate specified below for
each hour of services rendered under a Work Plan by the associated Job
Title using assigned Microsoft Internal Reference Numbers, if any.
Total Staffing Levels
Job Title Hourly Rate
Engineering Director ***
Development Lead ***
Apps Engineer ***
Apps Engineer ***
Systems Engineer ***
Project Manager ***
Program Manager ***
QA Manager ***
QA Lead ***
QA Engineer ***
QA Tester ***
Project Support ***
<TABLE> <S> <C>
<ARTICLE> 5
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 28,223
<SECURITIES> 0
<RECEIVABLES> 7,127
<ALLOWANCES> 412
<INVENTORY> 0
<CURRENT-ASSETS> 39,094
<PP&E> 3,040
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,256
<CURRENT-LIABILITIES> 4,333
<BONDS> 0
0
0
<COMMON> 151
<OTHER-SE> 37,456
<TOTAL-LIABILITY-AND-EQUITY> 42,256
<SALES> 4,252
<TOTAL-REVENUES> 6,299
<CGS> 460
<TOTAL-COSTS> 1,636
<OTHER-EXPENSES> 4,915
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 114
<INCOME-TAX> 0
<INCOME-CONTINUING> 114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 0.01
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</TABLE>
