0001104659-02-004200.txt : 20020814 0001104659-02-004200.hdr.sgml : 20020814 20020814180053 ACCESSION NUMBER: 0001104659-02-004200 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST VIRTUAL COMMUNICATIONS INC CENTRAL INDEX KEY: 0000920317 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 770357037 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23305 FILM NUMBER: 02737735 BUSINESS ADDRESS: STREET 1: 3393 OCTAVIUS DR STE 102 CITY: SANTA CLARA STATE: CA ZIP: 95054 BUSINESS PHONE: 4085677200 MAIL ADDRESS: STREET 1: 3393 OCTAVIUS DRIVE SUITE 102 CITY: SANTA CLARA STATE: CA ZIP: 95054 FORMER COMPANY: FORMER CONFORMED NAME: FIRST VIRTUAL CORP DATE OF NAME CHANGE: 19971010 FORMER COMPANY: FORMER CONFORMED NAME: FVC COM INC DATE OF NAME CHANGE: 19980811 10-Q 1 j4458_10q.htm 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2002

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-23305

FIRST VIRTUAL COMMUNICATIONS, INC.
(Exact name of registrant in its character)

Delaware		77-0357037
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

3393 Octavius Drive Santa Clara, CA 95054
(Address of principal executive offices)

(408) 567-7200
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Common Stock, $0.001 par value		40,328,535 shares
(Class)		Outstanding as of August 8, 2002

First Virtual Communications, Inc.

Form 10-Q

Index

PART 1.	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at June 30, 2002 (unaudited) and December 31, 2001	1
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2002	2
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002	3
	Notes to Unaudited Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	23
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 2.	Change in Securities	24
Item 4.	Submission of Matters to Vote of Security Holders	25
Item 6.	Exhibits and Reports on Form 8-K	26
SIGNATURES		27
EXHIBIT INDEX		28

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

First Virtual Communications, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share data)

	June 30, 2002 (Unaudited)			December 31, 2001 (Audited)
ASSETS
Current assets:
Cash and cash equivalents	$	10,305		$	6,946
Short-term investments	495			2,438
Accounts receivable	6,524			6,365
Inventory	1,639			3,188
Prepaids and other current assets	1,056			1,227
Total current assets	20,019			20,164
Property and equipment, net	2,847			3,183
Other assets	398			322
Intangible assets, net	13,807			14,489
	$	37,071		$	38,158

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	261		$	36
Accounts payable	3,372			3,268
Accrued liabilities	4,076			5,561
Deferred revenue	4,137			2,936
Total current liabilities	11,846			11,801

Long-term debt, net of current portion	225			—

Minority interest in consolidated subsidiary	5			—

Stockholders’ equity:
Convertible Preferred Stock, $.001 par value; 5,000,000 shares authorized; 27,437 shares issued and outstanding, respectively	—			—
Common stock, $.001 par value; 100,000,000 shares authorized; 40,116,179 and 33,327,995 shares issued and outstanding, respectively	40			33
Additional paid-in capital	118,333			113,437
Accumulated other comprehensive loss	74			153
Accumulated deficit	(93,452		)	(87,266		)
Total stockholders’ equity	24,995			26,357
	$	37,071		$	38,158

See accompanying notes to condensed consolidated financial statements.

First Virtual Communications, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share data; unaudited)

	Three months ended June 30,						Six months ended June 30,
	2002			2001			2002			2001

Revenue
Software	$	1,916		730			$	5,998		763
Product	3,568			5,695			4,909			9,001
Support Services	1,160			1,710			2,338			2,753
Total Revenue	6,644			8,135			13,245			12,517

Cost of revenue	3,653			4,389			5,001			6,976

Gross profit	2,991			3,746			8,244			5,541

Operating expense:
Research and development	2,431			2,842			5,188			6,828
Sales and marketing	2,375			2,353			4,290			5,368
General and administrative	2,777			3,070			5,061			6,509
Acquisition and other non-recurring charges	—			1,781			—			1,781
Total operating expense	7,583			10,046			14,539			20,486

Operating loss	(4,592		)	(6,300		)	(6,295		)	(14,945		)

Other income, net	48			170			92			486
Minority interest in consolidated subsidiary	32			(12		)	17			(14		)

Net loss	$	(4,512	)	$	(6,142	)	$	(6,186	)	$	(14,473	)

Basic and diluted net loss per share	$	(0.12	)	$	(0.33	)	$	(0.17	)	$	(0.79	)

Shares used in computing basic and diluted net loss per share	38,445			18,859			36,267			18,238

See accompanying notes to condensed consolidated financial statements.

First Virtual Communications, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands; unaudited)

	Six Months Ended June 30
	2002			2001

Cash flows from operating activities:
Net Loss	$	(6,186	)	$	(14,473	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and Amortization	1,587			1,900
Provision for doubtful accounts	509			—
Acquired in-process research and development	—			276
Other non-recurring costs	—			1,083
Provision for inventory	1,000			592
Other	(98		)	(9		)
Changes in assets and liabilities:
Accounts receivable	(441		)	2,422
Inventory	549			(4,143		)
Prepaid expenses and other assets	(121		)	(1,407		)
Accounts payable	104			(1,385		)
Accrued liabilities	(1,185		)	(1,389		)
Deferred revenue	1,201			1,332
Net cash used in operating activities	(3,081		)	(15,201		)

Cash flows from investing activities:
Acquisition of property and equipment, net	(430		)	218
Proceeds from sales of short-term investments, net	1,848			12,032
Cash acquired in acquisition of CUseeMe Networks, Inc.	—			6,601
Net cash provided by investing activities	1,418			18,851

Cash flows from financing activities:
Proceeds from issuance of common stock, net	5,022			170
Repayment of Capital lease obligations	—			29
Net cash provided by financing activities	5,022			199

Net increase in cash and cash equivalents	3,359			3,849
Cash and cash equivalents at beginning of period	6,946			7,077

Cash and cash equivalents at end of period	$	10,305		$	10,926

Supplemental cash flow information:

Common stock issued and options and warrant assumed in connection with acquisition of CUseeMe Networks, Inc.	$	—		$	20,190

See accompanying notes to condensed consolidated financial statements.

First Virtual Communications, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

First Virtual Communications, Inc. (the “Company”) has prepared the accompanying financial data for the quarterly period ended June 30, 2002 pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.

In the opinion of management, the accompanying condensed consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the Company’s consolidated financial position as of June 30, 2002, consolidated results of operations for the three and six months ended June 30, 2002 and 2001, and consolidated cash flow activities for the six months ended June 30, 2002 and 2001.

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

The results of operations for the six months ended June 30, 2002 are not necessarily indicative of the results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with Management s Discussion and Analysis of Financial Condition and Results of Operations, the consolidated financial statements and notes thereto included in the Company’s 2001 Annual Report on Form 10-K/A.

2. Short Term Investments

Management determines the appropriate classification of short term investments in marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. Held-to-maturity securities are carried at amortized cost, which approximates fair value. Available-for-sale securities are stated at fair value as determined by the most recently traded price of each security at the balance sheet date. The net unrealized gains or losses on available-for-sale securities are reported as a component of comprehensive loss, net of tax. The specific identification method is used to compute the realized gains and losses on debt and equity securities.

The Company regularly monitors and evaluates the realizable value of its marketable securities. If events and circumstances indicate that a decline in the value of these assets has occurred and is other than temporary, the Company records a charge to investment income (expense).

Marketable securities are comprised as follows (in thousands):

	June 30, 2002		December 31, 2001
Available-for-sale:
Corporate debt	$	407	$	414
Corporate medium-term notes	—		1,850
Certificate of Deposit	70		60
Equity securities	18		114
	$	495	$	2,438

As of June 30, 2002, the Company’s available for sale securities had contractual maturities of less than one year. Available-for-sale securities are comprised as follows at June 30, 2002 and December 31, 2001 (in thousands):

	Cost		Unrealized Gains		Unrealized Losses			Fair Value
December 31, 2001
Equity securities	$	169	$	—	$	(55	)	$	114
Debt securities	2,320		5		(1		)	2,324
Total	$	2,489	$	5	$	(56	)	$	2,438

June 30, 2002
Equity securities	$	169	$	—	$	(151	)	$	18
Debt securities	477		—		—			477
Total	$	646	$	—	$	(151	)	$	495

3. Inventory

Inventories as of June 30, 2002 and December 31, 2001 were (in thousands):

	June 30, 2002		December 31, 2001

Raw materials	$	1,052	$	2,384
Finished goods	587		804
Total inventory	$	1,639	$	3,188

4. Net Loss Per Share

Basic loss per share is based on the weighted-average number of common shares outstanding excluding contingently issuable or returnable shares, such as shares of unvested restricted common stock. Diluted earnings (loss) per share is based on the weighted-average number of common shares outstanding and dilutive potential common shares outstanding.

As a result of the losses incurred by the Company for the three and six months ended June 30, 2002 and 2001, all potential common shares were anti-dilutive and were excluded from the diluted net loss per share calculations for such periods.

The following table summarizes securities outstanding that were not included in the calculations of diluted net loss per share for the three and six months ended June 30, 2002 and 2001, since their inclusion would be anti-dilutive:

	Three and Six months ended June 30,
	2002	2001
	(in thousands)
Unvested restricted common stock		—
Common stock options	11,501	12,208
Common stock warrants	6,913	3,589
Convertible preferred stock	3,617	5,617

The common stock warrants are exercisable at $.91 to $12.00 per share and expire at various times from December 31, 2002 through April 12, 2007. The stock options outstanding at June 30, 2002, had a weighted average exercise price per share of $2.72, and expire beginning in June 2004 through June 2012.

5. Adoption of SFAS 142, Goodwill and Other Intangible Assets

The Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), “Goodwill and Other Intangible Assets,” in the first quarter of 2002. SFAS 142 supersedes Accounting Principles Board Opinion No. 17, “Intangible Assets,” and discontinues the amortization of goodwill. In addition, SFAS 142 includes provisions regarding: 1) the reclassification between goodwill and identifiable intangible assets in accordance with the new definition of intangible assets set forth in Statement of Financial Accounting Standards No. 141, “Business Combinations;” 2) the reassessment of the useful lives of existing recognized intangibles; and 3) the testing for impairment of existing goodwill and other intangibles.

In accordance with SFAS 142, beginning January 1, 2002, goodwill is no longer being amortized, but will be reviewed periodically for impairment. The Company did not identify any intangibles to be reclassified out of previously reported goodwill under the new definition of intangible assets. Purchased technology and other intangible assets are being amortized over their estimated useful lives of five years using the straight-line method. No changes were made to the useful lives of amortizable intangibles in connection with the adoption of SFAS 142.

Components of intangible assets were as follows (in thousands):

	June 30 , 2002				December 31, 2001
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Amortized intangible assets:
Purchased technology	$	6,161	$	(1,222)	$	6,161	$	(651	)
Assembled workforce	—		—		1,505		(159		)
Trademark	661		(132)		661		(70		)
Other	668		(270)		218		(74		)

Total	$	7,490	$	(1,624)	$	8,545	$	(954	)

Unamortized intangible assets:
Goodwill	$	9,069	$	(1,128)	$	8,026	$	(1,128	)

The Company reclassified previously identified intangible assets related to the purchase of an assembled workforce with a net unamortized balance of $1,346,000 to goodwill. During the six months ended June 30, 2002, the Company settled certain pre-acquisition contingencies, resulting in a net decrease of goodwill in the amount of approximately $303,000.

Aggregate amortization expense was $441,000 for the three months ended June 30, 2002 and $154,000 for the three months ended June 30, 2001. Aggregate amortization expense was $821,000 for the six months ended June 30, 2002 and $308,000 for the six months ended June 30, 2001. As of June 30, 2002, future estimated amortization expense is expected to be: $0.8 million for the second half of 2002, $1.5 million for 2003, $1.5 million for 2004, $1.4 million for 2005 and $0.6 million for 2006.

Net income on a pro forma basis, excluding goodwill amortization expense, would have been as follows (in thousands):

	Three months ended June 30,						Six months ended June 30,
	2002			2001			2002			2001

Reported net loss	$	(4,512	)	$	(6,142	)	$	(6,186	)	$	(14,473	)
Adjustments
Goodwill amortization	—			154			—			308

Adjusted net income/(loss)	(4,512		)	(5,988		)	(6,186		)	(14,165		)

Basic and diluted net loss per share
Reported net loss	$	(0.12	)	$	(0.33	)	$	(0.17	)	$	(0.79	)
Adjusted net loss	$	(0.12	)	$	(0.32	)	$	(0.17	)	$	(0.78	)

6. Comprehensive Loss

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources, including foreign currency translation adjustments and unrealized gains and losses on marketable securities.

Components of accumulated other comprehensive loss consist of the following (in thousands):

	June 30, 2002			December 31, 2001
Foreign currency translation	$	225			$	204
Unrealized loss on marketable securities, net of income taxes	(151		)		(51		)
	$	74			$	153

Comprehensive losses for the three and six month periods ended June 30, 2002 and 2001 were as follows (in thousands):

	Three months ended June 30,						Six months ended June 30,
	2002			2001			2002			2001

Net loss, as reported	$	(4,512	)	$	(6,142	)	$	(6,186	)	$		(14,473	)
Cumulative translation adjustment	(54		)	(10		)	(21		)	26
Unrealized gain (loss) on marketable securities, net of Income Taxes	(44		)				(95		)

Comprehensive loss	$	(4,610	)	$	(6,132	)	$	(6,302	)	$	(14,447		)

7. Litigation

On April 23, 2001, the Company received notice of a stockholder’s derivative action filed in California Superior Court in the County of Santa Clara, alleging that, among other things, certain directors and officers of the Company sold shares of the Company’s common stock between January 21, 1999 and April 6, 1999, while in possession of material non-public information pertaining to the Company. The Company and the individual defendants demurred to the complaint, and moved to dismiss the action, or in the alternative to stay the action pending the outcome of the appeal in the related federal court class action or, if necessary, the investigation of the claims by the Company. The court granted the demurrer in part and denied it in part, granting plaintiff leave to file an amended complaint, and stayed the action pending the outcome of the appeal in the federal court class action. The court also ordered that certain limited discovery of documents could take place with respect to the filing of the amended complaint. In December 2001, the plaintiff moved for leave to take certain third-party discovery. The motion was denied by the court. Plaintiff filed an amended complaint on February 22, 2002. A hearing on the defendants’ demurrer to the amended complaint was scheduled to take place on May 21, 2002. The parties agreed to a continuance of the hearing in order to permit them to engage in settlement discussions with a third-party mediator. On July 25, 2002, the parties reached a tentative settlement of the derivative action, subject to a number of conditions, including approval of the settlement by a special committee of independent directors appointed by the Company’s Board of Directors and empowered to act on behalf of the Company with respect to the action. Under the terms of the tentative settlement, the Company would not pay any money to any party in connection with the settlement, nor would it pay any money as indemnification to present or former officers and directors in the event of a settlement of the SEC enforcement action described in the following paragraph.

On April 25, 2002, the Company was informed by the staff of the SEC that the staff intends to recommend that the SEC commence an enforcement action against the Company, Ralph Ungermann and two former officers of the Company in connection with the Company’s January 1999 announcement of unaudited financial results for the quarter and year ended December 31, 1998, which were revised by the Company prior to the release of the Company’s Form 10-K in April 1999. The staff indicated that the basis for such an action would be allegations that the January 1999 announcement was misleading and/or the result of inadequate financial controls. The staff did not state what remedies it would seek in such an action, but noted that the remedies it might seek could include an injunction against future violations, disgorgement, civil penalties and an officer and director bar against the individuals. The Company expresses no opinion as to the likely outcome of this matter. While no assurances can be provided, the Company does not believe that the investigation will have a material adverse effect on its business, financial condition or results of operations. However, the Company's evaluation of the likely impact of

these actions could change in the future and an unfavorable outcome, depending upon the amount and timing, could have a material effect on our results of operations or cash flows of a future period.

8. New Accounting Pronouncements

On October 3, 2001, the FASB issued Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 supercedes Statement of Financial Accounting Standard No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30. SFAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 is effective for the Company for all financial statements issued in fiscal 2003.

In April 2002, the FASB issued FAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which is effective for transactions occurring after May 15, 2002. FAS 145 rescinds FAS 4 and FAS 64, which addressed the accounting for gains and losses from extinguishment of debt. FAS 44 set forth industry-specific transitional guidance that did not apply to the Company. FAS 145 amends FAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. FAS 145 also makes technical corrections to certain existing pronouncements that are not substantive in nature. The Company does not expect the adoption of FAS 145 to have a significant impact on its financial position or results of operations.

In July 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company is currently evaluating the provisions of SFAS 146 but does not believe that the adoption will have a material impact on its results of operations, financial position, or cash flows.

9. Issuance of common stock and warrants

On March 29, 2002, the Company signed a definitive binding agreement to raise approximately $4.8 million from a private placement of its common stock and warrants. On April 12, 2002, the Company issued 6,686,000 shares of common stock at $0.72 per share and warrants to purchase 3,343,001 shares of common stock at an exercise price of $1.01 per share. The warrants are exercisable for five years, commencing six months from the closing date. Among others, the investors in the offering included Mr. Ungermann and Dr. Gaut, members of the Company’s Board of Directors, and Special Situations Technology Fund L.P., of which Adam Stettner, a member of the Company’s Board of Directors, serves as the Managing Director.

10. Subsequent Event(s)

On July 31, 2002 the Company acquired the remaining 48% interest in its subsidiary in the United Kingdom in exchange for $259,098 in cash and potential future payments based on financial performance.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of First Virtual Communications, Inc. should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and the Notes thereto included in Item 1 of this Quarterly Report on Form 10-Q.

In addition to the historical information contained in this Item, this Item contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These forward looking statements include, without limitation, statements containing the words “believes,” “anticipates,” “expects,” and words of similar import. Such forward-looking statements will have known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: the Company’s limited operating history and variability of operating results, market acceptance of video technology, including the Company’s new broadband video services business, dependence on ATM and other technologies, the Company’s potential inability to maintain business relationships with telecommunications carriers, distributors and suppliers, rapid technological changes, competition and consolidation in the video networking industry, the importance of attracting and retaining personnel, management of the Company’s growth, the risk that the benefits expected from the merger with CUseeMe Networks will not be realized, consolidation and cost pressures in the video networking industry, dependence on key employees, and other risk factors set forth below and described in this Form 10-Q report and in other documents the Company files with the SEC. The Company assumes no obligation to update any forward-looking statements contained herein.

Overview

The Company delivers integrated, end-to-end rich media Web conferencing and collaboration solutions, including both hardware and software technologies, for IP, ISDN and ATM networks. The Company combines its expertise in networking systems, real-time audio and video technology, and Web-based collaboration to provide integrated voice, video, data, text and streaming media solutions for a wide range of rich media enterprise applications, including Web conferences, broadcasts, video-on-demand, videoconferences and video calls over converged multi-service networks. The Company provides integrated, end-to-end rich media communications solutions, including both hardware and software technologies, for IP, ISDN and ATM networks. The Company was incorporated in California in October 1993 and reincorporated in Delaware in December 1997. The Company first shipped its video networking products in 1995.

On June 19, 2001, the Company and CUseeMe Networks completed a merger, pursuant to which CUseeMe Networks became a wholly owned subsidiary of the Company. CUseeMe Networks provided innovative software-based solutions to enable voice, video, and data collaboration over IP-based networks. CUseeMe Networks specialized in delivering a solution that was both centrally managed and centrally deployed, enabling large-scale deployments of rich media collaboration to enterprise desktops. As a result of the merger, the Company is able to provide a broad range of integrated rich media Web conferencing solutions that run seamlessly across multiple network types to enterprise customers and service providers worldwide.

In the three months ended June 30, 2002, the Company recorded $6.6 million in revenue, a decrease of 18.3% compared to the same period of the previous year. In the six months ended June 30, 2002, the Company recorded $13.2 million in revenue, an increase of 5.8% compared to the same period of the previous year. The Company derived its revenue in the three months and six months ended June 30, 2002 from the sale of products and services to distributors, value added resellers, federal government agencies, enterprise customers and telecommunications service providers. The Company sells primarily through indirect sales channels and telecommunications service providers, which include companies such as Net One Systems, Hitron, Electronic Data Systems, AT&T and France Telecom. For the three months ended June 30, 2002, 54.3% of the Company’s revenue was from enterprise customers and 45.7% was from service providers, compared to 52.3% from enterprise customers and 47.7% from service providers in the same period of the prior year. For the six months ended June 30, 2002, 70.6% of the Company’s revenue was from enterprise customers and 29.4% was from service providers, while for the six months ended June 30, 2001, revenue from enterprise customers was 63.0% and 37.0% was from service providers. The Company’s internal sales force qualifies and stimulates end-user demand, and manages the Company’s strategic relationships with its distribution partners, including original equipment manufacturers, or OEMs, and value added resellers, or VARs, and systems integrators. AT&T Corporation accounted for 36.7% of net revenue in the three months ended June 30, 2002, and AT&T Corporation and a federal government agency accounted for 19.0% and 14.1%, respectively, of net revenue in the six months ended June 30, 2002. Electronic Data Systems accounted for 15.6% of net revenue in the three months ended June 30, 2001, and Electronic Data Systems accounted for 14.8% of net revenue in the six months ended June 30, 2001. At June 30, 2002, two customers accounted for 19.6% of total accounts receiveable. At June 30, 2001, one customer accounted for 12.5% of total accounts receiveable.

The Company maintains sales offices in the United Kingdom, France, Italy, Hong Kong and Japan, and distributes its products under the FVC.COM name in both Europe and Asia through resellers and distributors in more than 25 countries. Sales in Asia, excluding Japan, are conducted through the Company’s Hong Kong sales subsidiary, since the Company’s acquisition of its exclusive distributor for Asia in January of 2002. For the three months ended June 30, 2002 and June 30, 2001, approximately 28.0% and 19.6%, of the Company’s sales were generated from customers outside of the United States. For the six months ended June 30, 2002 and June 30, 2001, approximately 30.2% and 21.3% of the Company's sales were generated from customers outside of the United States.

The Company expects that direct sales from shipments to customers outside of the United States will continue to represent a significant portion of its future revenue. In addition, the Company believes that a small portion of its sales through OEMs, resellers and integrators are ultimately sold to international end-users. Revenue from the Company’s international operations is subject to various risks, including seasonality, longer payment cycles, changes in regulatory requirements and tariffs, reduced protection of intellectual property rights, political and economic restraints, and currency risks, among others. To date, the Company has not engaged in any foreign currency hedging activity.

Some of the Company’s products are assembled and tested by subcontract manufacturers, the largest provider being InnerStep, Inc.

CRITICAL ACCOUNTING POLICIES

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a detailed discussion of the application of these and other accounting policies, see Note 1 in the Notes to the Consolidated Financial Statements in Item 14 of our Annual Report on Form 10-K/A for the year ended December 31, 2001. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates.

Revenue recognition. We derive our revenue from primarily two sources (i) product revenue, which includes software license and hardware revenue, and (ii) services and support revenue which includes software license maintenance, training and consulting revenue. As described below, significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.

We apply the provisions of Statement of Position 97-2, “Software Revenue Recognition,” to all transactions involving the sale of software products and hardware transactions where the software is not incidental. For hardware transactions where software is incidental, we apply the provisions of SEC Staff Accounting Bulletin 101, “Revenue Recognition.”

We license our software products on a perpetual basis. We recognize revenue from the sale of software licenses when persuasive evidence of an arrangement exists, the product has been delivered, the fee is fixed and determinable and collection of the resulting receivable is reasonably assured. Delivery generally occurs when product is delivered to a common carrier.

At the time of the transaction, we assess whether the associated fee is fixed and determinable and whether or not collection is reasonably assured. We assess whether the fee is fixed and determinable based on the payment terms associated with the transaction. If a significant portion of a fee is due after our normal payment terms, which are 30 to 90 days from invoice date, we account for the fee as not being fixed and determinable. In these cases, we recognize revenue as the fees become due.

We assess collection based on a number of factors, including past transaction history with the customer and the credit-worthiness of the customer. We do not request collateral from our customers. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of cash.

For all sales, except those completed over the Internet, we generally use either a binding purchase order or other signed agreement as evidence of an arrangement. For sales over the Internet, we use a credit card authorization as evidence of an arrangement. Generally sales through our distributors and official resellers are evidenced by a reseller agreement governing the relationship with or without binding purchase orders on a transaction by transaction basis.

For arrangements with multiple obligations (for example, undelivered maintenance and support), we allocate revenue to each component of the arrangement using the residual value method based on the fair value of the undelivered elements, which is specific to the Company. This means that we defer revenue from the arranged fee that is equivalent to the fair value of the undelivered elements. Fair values for the ongoing maintenance and support obligations for our perpetual licenses are based upon separate sales of renewals to other customers or upon renewal rates quoted in the contracts. The

Company bases the fair value of services, such as training or consulting, upon separate sales of these services to other customers. We recognize revenue for maintenance services ratably over the contract term. Our training and consulting services are billed based on hourly rates, and we generally recognize revenue as these services are performed.

Our arrangements do not generally include acceptance clauses. However, if an arrangement includes an acceptance provision, acceptance occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period.

Revenue from sales to certain of the Company’s resellers is subject to agreements allowing rights of return and price protection. In these cases, the Company provides reserves for estimated future returns and allowances upon revenue recognition. These reserves are estimated based upon historical rates of returns and allowances, reseller inventory levels, the Company’s estimates of sell through by resellers and other related factors. Actual results could differ from these estimates. In the event of the inability to estimate returns from any reseller, the Company defers revenue recognition until the reseller has sold the products to the end-user. Advance payments received from customers and gross margin deferred with respect to sales, for which revenue has not been recorded, are recorded as deferred revenue.

Sales returns and other allowances, allowance for doubtful accounts and litigation. The preparation of financial statements requires our management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the period. Specifically, our management must make estimates of potential future product returns related to current period product revenue. Management analyzes historical returns, current economic trends, and changes in customer demand and acceptance of our products when evaluating the adequacy of the sales return and other allowances. Significant management judgments and estimates must be made and used in connection with establishing the sales return and other allowances in any accounting period. Material differences may result in the amount and timing of our revenue for any period if management made different judgments or utilized different estimates. The provision for sales returns and other allowances amounted to $708,000 at June 30, 2002 and $809,000 at June 30, 2001. Similarly, our management must make estimates of the uncollectability of our accounts receivable. Management specifically analyzes accounts receivable, including historical bad debts, customer concentrations, customer credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. The accounts receivable balance was $6.5 million, net of allowance for doubtful accounts and returns of $1.8 million as of June 30, 2002. The accounts receivable balance was $6.4 million, net of allowance for doubtful accounts and returns of $2.5 million as of December 31, 2001.

Management’s current estimated range of liability related to some of the pending litigation involving the Company is based on claims for which our management can estimate the amount and range of loss. We have recorded the minimum estimated liability related to those claims, where there is a range of loss. Because of the uncertainties related to both the amount and range of loss on the pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates. Such revisions in our estimates of the potential liability could materially impact our results of operation and financial position.

Valuation of Inventories. The Company writes down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. During the three months ended June 30, 2002, the Company recorded inventory related charges of $1.0 million, which related to the write down of inventories for excess and obsolete products. During the year ended December 31, 2001, the Company recorded inventory related charges of $7.3 million, which related to the write down of inventories for excess and obsolete products.

Valuation of long-lived and intangible assets and goodwill. The Company will perform goodwill impairment tests on an annual basis and between annual tests in certain circumstances. In response to changes in industry and market conditions, the Company may strategically realign its resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill. Factors the Company considers important that could trigger an impairment review include the following:

• significant underperformance relative to expected historical or projected future operating results;

• significant changes in the manner of the Company’s use of the acquired assets or the strategy for its overall business;

• significant negative industry or economic trends;

• significant decline in the Company’s stock price for a sustained period; and

• the Company’s market capitalization relative to net book value.

When the Company determines that the carrying value of intangibles, long-lived assets and goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, the Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by its management to be commensurate with the risk inherent in the Company’s current business model.

Accounting for income taxes. As part of the process of preparing the Company’s consolidated financial statements the Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves the Company estimating its actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheet. The Company must then assess the likelihood that its deferred tax assets will be recovered from future taxable income and to the extent that the Company believes that recovery is not likely, it must establish a valuation allowance. To the extent the Company establishes a valuation allowance or increases this allowance in a period, it must include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining the Company’s provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against its net deferred tax assets. The Company has recorded a valuation allowance of $46.5 million as of December 31, 2001, due to uncertainties related to the ability to utilize some of the deferred tax assets, primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire. The valuation allowance is based on the Company’s estimates of taxable income by jurisdiction in which it operates and the period over which its deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to establish an additional valuation allowance which could materially impact its financial position and results of operations. At June 30, 2002, the deferred tax asset continued to be fully reserved.

Results of Operations

The following table sets forth certain items from the Company’s condensed consolidated statements of operations as a percentage of total revenues for the periods indicated.

	Three months ended June 30,				Six months ended June 30,
	2002		2001		2002		2001

Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue	55.0	%	54.0	%	37.8	%	55.7	%

Gross profit	45.0	%	46.0	%	62.2	%	44.3	%

Operating expense:
Research and development	36.6	%	34.9	%	39.2	%	54.5	%
Sales and marketing	35.7	%	28.9	%	32.4	%	42.9	%
General and administrative	41.8	%	37.7	%	38.2	%	52.0	%
Acquisition and other non-recurring charges	0.0	%	21.9	%	0.0	%	14.2	%

Total operating expense	114.1	%	123.5	%	109.8	%	163.7	%

Operating loss	-69.1	%	-77.4	%	-47.5	%	119.4	%

Other income, net	0.7	%	2.1	%	0.7	%	3.9	%
Minority interest in consolidated subsidiary	0.5	%	-0.1	%	0.1	%	-0.1	%

Net loss	-67.9	%	-75.5	%	-46.7	%	-115.6	%

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

Revenue. Revenue was $6.6 million for the three months ended June 30, 2002, a decrease of 18.3% from $8.1 million for the three months ended June 30, 2001. The decrease in revenue was primarily a result of lower demand and lower average selling prices of hardware based ATM legacy products.

Gross Profit. Gross profit consists of revenue less the cost of revenue, which consists primarily of costs associated with the purchase of components from outside manufacturers or the manufacture of the Company’s products by outside manufacturers and related costs of freight, inventory obsolescence, royalties, warranties and customer support costs, which were expensed in the period incurred.

Gross profit for the three months ended June 30, 2002 decreased by $755,000 to $3.0 million, or 45% of revenue, compared to $3.7 million, or 46% of revenue in the comparable period of 2001. The decrease was due to the provision for excess and obsolete inventory related to legacy ATM products offset by a higher percentage of revenue from software-based products.

Research and Development. Research and development expense consist primarily of personnel costs, costs of contractors and outside consultants, supplies and materials expenses, equipment depreciation and overhead costs. Research and development expense decreased $411,000 to $2.4 million in the three months ended June 30, 2002, a decrease of 14.5% over the $2.8 million during the three months ended June 30, 2001. The decrease in absolute dollars was principally due to a $141,000 decrease in personnel-related expenses, a $141,000 decrease in consulting expenditures and a $129,000 decrease in other expenses after the Company implemented cost cutting measures throughout the organization. As a percentage of total revenue, research and development expense increased to 36.6% for the three months ended June 30, 2002, from 34.9% for the three months ended June 30, 2001. The increase as a percentage of revenue primarily was due to the lower revenue during the three months ended June 30, 2002.

General and Administrative. General and administrative expense includes personnel and related overhead costs for finance, human resources, information technology, product operations, and general management and the amortization of intangible assets. General and administrative expense decreased $293,000, or 9.5%, for the three months ended June 30, 2002, to $2.8 million, from $3.1 million in the three months ended June 30, 2001. The decrease was mainly due to a $253,000 decrease in personnel-related expenses, a $374,000 decrease in professional expenditures and a $395,000 decrease in other expenses after the Company implemented cost cutting measures throughout the organization, offset by an increase of $729,000 in bad debt expense. As a percentage of revenue, general and administrative expense increased to 41.8% in the three months ended June 30, 2002, compared to 37.7% for the three months ended June 30, 2001. The increase in general and administrative expense as a percentage of revenues for the three months ended June 30, 2002 primarily reflects the lower revenue from the comparable period of 2001.

Acquisition and other non-recurring costs, net. The $1.8 million of one-time charges in the second quarter of 2001 includes $276,000 of in-process research and development activities as a result of the acquisition of CUseeMe Networks, the impairment of $1.1 million of goodwill, associated with the 1998 acquisition of ICAST Corporation and $422,000 of costs associated with the reduction in workforce during the quarter, ended September 30, 2001. We incurred no acquisition or other non-recurring costs, net, in the period ending Jne 30, 2002.

Other Income, Net. Other income, net consists primarily of interest income earned on short-term investments and cash balances, offset by interest expense relating to the Company’s credit facilities and long-term debt, if any. Other income, net totaled $48,000 for the three months ended June 30, 2002, compared to $170,000 for the three months ended June 30, 2001. The decrease primarily was a result of lower market interest rates.

Minority Interest in Consolidated Subsidiary. Minority interest reflects the interest of minority stockholders in the operating results of the Company’s consolidated subsidiary in the United Kingdom. The Company acquired a controlling interest in this entity in May 1999. For the three months ended June 30, 2002, the amount primarily reflects the portion of losses in this subsidiary that were attributable to minority stockholders.

Income Taxes. The Company has incurred losses since its inception. No tax benefit was recorded for any period presented, as the Company believes that, based on the history of such losses and other factors, the weight of available evidence indicates that it is more likely than not that it will not be able to realize the benefit of these net operating losses, and thus a full valuation reserve has been recorded.

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001

Revenue. Revenue was $13.2 million for the six months ended June 30, 2002, an increase of 5.8% from the $12.5 million for the six months ended June 30, 2001. The increase in revenue was mainly due to the Company’s transition form sales of hardware-based ATM legacy products to software-based products as well as its efforts to expand its customer base worldwide.

Gross Profit. Gross profit consists of revenue less the cost of revenues, which consists primarily of costs associated with the purchase of components from outside manufacturers or the manufacture of the Company’s products by outside manufacturers and related costs of freight, inventory obsolescence, royalties, warranties and customer support costs, which were expensed in the period incurred.

Gross profit for the six months ended June 30, 2002 increased by $2.7 million to $8.2 million, or 62.2% of revenue, compared to $5.5 million, or 44.3% of revenue in the comparable period of 2001. The increase primarily was due to a higher percentage of revenue from software-based products in the quarter.

Research and Development. Research and development expense consists primarily of personnel costs, costs of contractors and outside consultants, supplies and materials expenses, equipment depreciation and overhead costs. Research and development expense decreased $1.6 million to $5.2 million for the six months ended June 30, 2002, a decrease of 24.0% over the $6.8 million for the six months ended June 30, 2001. The decrease in absolute dollars principally was due to an $888,000 decrease in personnel-related expenses, a $406,000 decrease in professional expenditures, a $276,000 decrease in equipment and supply expenses, and a $271,000 decrease in travel and entertainment expenses and other expenses after the Company implemented

cost cutting measures throughout the organization, offset by an increase of $201,000 in allocated facility expenses mainly due to the merger with CuseeMe Networks. As a percentage of total revenue, research and development expense decreased to 39.2% for the six months ended June 30, 2002, from 54.5% for the six months ended June 30, 2001. The decrease as a percentage of revenue primarily was due to the higher sales and lower spending during the six months ended June 30, 2002.

Sales and Marketing. Sales and marketing expense includes personnel and related overhead costs for sales and marketing, costs of outside contractors, advertising, trade shows and other related marketing and promotional expenses. Sales and marketing expense decreased $1.1 million, or 20.1%, for the six months ended June 30, 2002, to $4.3 million from $5.4 for the six months ended June 30, 2001. The decrease in absolute dollars was principally due to a $376,000 decrease in personnel-related expenses, a $278,000 decrease in trade show and marketing activity expenditures, and a $174,000 decrease in equipment and supply expense and other expenses after the Company implemented cost cutting measures throughout the organization, [and a $359,000 decrease in bad debt expense due to the subsequent collection of the accounts receivable from one of our subsidiaries, which was originally reserved as doubtful accounts in the quarter ended December 31, 2001, offset by an increase of $109,000 in allocated facility expense mainly due to the merger with CuseeMe Networks. As a percentage of total revenue, sales and marketing expense decreased to 32.4% for the six months ended June 30, 2002, from 42.9% for the six months ended June 30, 2001. The decrease as a percentage of revenue primarily was due primarily to lower spending during the six months ended June 30, 2002.

General and Administrative. General and administrative expense include personnel and related overhead costs for finance, human resources, information technology, product operations, and general management and the amortization of intangible assets. General and administrative expense decreased $1.4 million, or 22.2%, for the six months ended June 30, 2002, to $5.1 million, from $6.5 million for the six months ended June 30, 2001. The decrease primarily was due to a $1.0 million decrease in personnel-related expenses, a $859,000 decrease in professional expenditures, a $209,000 decrease in equipment and supply expense, a $173,000 decrease in travel and entertainment expenditures, and a $269,000 decrease in other expenses after the Company implemented cost cutting measures throughout the organization, offset by an increase of $729,000 in bad debt expense. As a percentage of revenue, general and administrative expense decreased to 38.2% in the six months ended June 30, 2002, compared to 52.0% for the six months ended June 30, 2001. The decrease in general and administrative expense as a percentage of revenues for the six months ended June 30, 2002 primarily reflects the higher revenue and lower spending from the comparable period of 2001.

Acquisition and other non-recurring costs, net. The $1.8 million of one-time charges in the second quarter of 2001 includes $276,000 of in-process research and development activities as a result of the acquisition of CUseeMe Networks, the impairment of $1.1 million of goodwill, associated with the 1998 acquisition of ICAST Corporation and $422,000 of costs associated with the reduction in workforce during the quarter ended on September 30, 2001. We incurred no accquisition or other non-recurring costs, net, in the period ending June 30, 2002.

Other Income, Net. Other income, net consists primarily of interest income earned on short-term investments and cash balances, offset by interest expense relating to the Company’s credit facilities and long-term debt. Other income, net totaled $92,000 for the six months ended June 30, 2002, compared to $486,000 for the six months ended June 30, 2001. The decrease primarily was a result of lower market interest rates.

Minority Interest in Consolidated Subsidiary. Minority interest reflects the interest of minority stockholders in the operating results of the Company’s consolidated subsidiary in the United Kingdom. The Company acquired a controlling interest in this entity in May 1999. For the six months ended June 30, 2002, the amount primarily reflects the portion of losses in this subsidiary that were attributable to minority stockholders.

Liquidity and Capital Resources

Since inception, the Company has financed its operations primarily through private and public placements of equity securities and to a lesser extent through certain credit facilities and long-term debt. As of June 30, 2002, the Company had cash and cash equivalents and short-term investments of $10.8 million and working capital of $8.2 million.

On March 29, 2002, the Company entered into a binding agreement to sell common stock and warrants to purchase common stock to investors in a private placement for aggregate proceeds of approximately $4.8 million. On April 12, 2002 the Company issued 6,686,000 shares of common stock at $0.72 per share and warrants to purchase 3,343,001 shares of common stock at an exercise price of $1.01 per share. The warrants are exercisable for five years, commencing six months from the closing date. The investors in the financing included Special Situations Funds, including Special Situations Technology Funds, L.P., of which Adam Stettner, a member of the Company’s Board of Directors, serves as Managing Director, Mr. Ungermann and Dr. Gaut, each of whom are members of the Company’s Board of Directors, and other purchasers.

The Company has experienced significant net operating losses from inception. In the six months ended June 30, 2002, the Company incurred losses of $6.2 million and used $3.1 million of cash in its operating activities. In the comparable period of 2001, the Company incurred net losses of $31.6 million and used $20.7 million of cash in its operating activities. Management currently expects that operating losses and negative cash flows will continue for the foreseeable future. The Company decreased the size of its workforce by 26% in 2001 and 7% in 2002, as well as instituting measures to control discretionary spending. Management currently believes that the Company's existing cash and investments are adequate to fund the Company's operations through December 31, 2002. However, the Company’s cash requirements depend on several factors, including the rate of market acceptance of its products and services, the ability to expand and retain its customer base the Company's ability to continue to control its expenses and other factors.

In order to aggressively pursue business opportunities, the Company may be required to seek equity investments from existing or potential strategic partners in the future. Should the Company sell additional equity, the sale may result in dilution to the Company’s current stockholders. Should the Company be unsuccessful in its efforts to raise equity from strategic partners, it may seek additional capital from the public and/or private equity markets that will likely result in dilution of the Company’s current stockholders. There can be no assurance that any financing will be available at acceptable terms or at all.

Cash used in operating activities totaled $3.1 million for the six months ended June 30, 2002, compared to $15.2 million for the six months ended June 30, 2001. Cash used in operating activities primarily consisted of $6.2 million from a net loss adjusted for non-cash items, a decrease of $1.2 million in accrued liabilities and an increase of $441,000 in accounts receivable, partially offset by an increase of $1.2 million of deferred revenue, a decrease of $549,000 in inventory, and an increase of $104,000 of accounts payable. Cash used in operating activities for the six months ended June 30, 2001, reflects $14.5 million from a net loss adjusted for non-cash items, an increase of $4.1 million in inventory, $1.4 million in prepaid expenses and other assets, a decrease of $1.4 million in accounts payable and $1.4 million in accrued liabilities, offset in part by a decrease of $2.4 million in accounts receivable and an increase of $1.3 million in deferred revenue.

Cash provided from investment activities totaled $1.4 million for the six months ended June 30, 2002, compared to $18.9 million for the six months ended June 30, 2001. Cash provided by investment activities for the six months ended June 30, 2002, primarily consisted of $1.8 million of net sales of short-term investments, offset by $430,000 of cash used in the acquisition of property and equipment. Cash provided in investment activities for the six month ended June 30, 2001, primarily consisted of net sales of short-term investments of $12.0 million and $6.6 million in cash acquired from the acquisition of CuseeMe Networks.

Cash provided by financing activities was $5.0 million for the six months ended June 30, 2002, principally from the issuance of stock. Cash provided by financing activities was $199,000 for the six months ended June 30, 2001, principally from the issuance of stock.

New Accounting Pronouncements. On October 3, 2001, the FASB issued Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 supercedes SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of.” SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30. SFAS 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. Additionally, SFAS 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS 144 is effective for the Company for all financial statements issued in fiscal 2003.

In April 2002, the FASB issued SFAS 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which is effective for transactions occurring after May 15, 2002. SFAS 145 rescinds SFAS 4 and FAS 64, which addressed the accounting for gains and losses from extinguishment of debt. SFAS 44 set forth industry-specific transitional guidance that did not apply to the Company. SFAS 145 amends SFAS 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-leaseback transactions. SFAS 145 also makes technical corrections to certain existing pronouncements that are not substantive in

nature. The Company does not expect the adoption of SFAS 145 to have a significant impact on its financial position or results of operations.

Risk Factors

In addition to the other information provided in this report, the following risk factors should be considered in evaluating the Company and its business.

The Company has a history of operating losses and will incur losses in the future. The Company may never generate sufficient revenue to achieve profitability.

The Company has incurred operating losses in each quarter since it commenced operations in 1993. The Company expects to continue to devote substantial resources to its research and development and sales and marketing activities. As a result, the Company expects that it will continue to incur operating losses for the foreseeable future. The Company’s revenues decreased from $40 million for the year ended December 31, 2000 to $27.7 million for the year ended December 31, 2001, while its net loss increased from $18.8 million for the year ended December 31, 2000 to $31.6 million for the year ended December 31, 2001. At June 30, 2002, the Company had an accumulated deficit of $93.5 million.

The Company’s quarterly financial results are expected to fluctuate and may cause the price of the Company’s common stock to fall.

The Company has experienced in the past, and is likely to experience in the future, fluctuations in revenue, gross margin and operating results. Various factors could contribute to the fluctuations in revenue, gross margin and operating results, including the Company’s:

• success in developing its rich media Web conferencing business and in developing, introducing and shipping new products and product enhancements, particularly for Click to Meet and the Multi Conferencing Unit, or MCU;

• success in accurately forecasting demand for new orders that may have short lead-times before required shipment, product mix, percentage of revenue derived from original equipment manufacturers, or OEMs versus distributors or resellers;

• new product introductions and price reductions by competitors;

• results from strategic collaborations;

• use of OEMs, distributors, resellers, and other third parties;

• ability to attract, retain and motivate qualified personnel;

• research and development efforts and success; and

• selling, general and administrative expenditures.

Additionally, the Company’s operating results may vary significantly depending on a number of factors that are outside of its control. Further, a significant portion of the Company’s expenses are fixed. The Company has made significant progress in reducing its operating expenses in the last year and expects that operating expenses will decrease in the future due to continued expense reduction measures. However, to the extent that operating expenses are not reduced and to the extent that revenue or gross margin cannot be increased, the Company’s business, financial condition and results of operations would be materially adversely affected. Due to all the foregoing factors, it is likely that in some future quarter, as at times in past quarters, the Company’s results of operations will be below the expectations of public market analysts and investors, resulting in a negative impact on the Company’s common stock price.

The Company’s success depends on the market’s acceptance of rich media and Web conferencing services and the Company’s products, including Click to Meet™ and the Multi Conferencing Unit.

The Company’s success depends in part on the market’s acceptance of rich media and Web conferencing services and the Company’s products, including Click to Meet™ and the MCU. Potential end-users must accept video applications as a viable alternative to face-to-face meetings and conventional classroom-based learning. New applications, such as the use of video conferencing in marketing, selling and manufacturing, are still in the development stage. The Company’s contracts with telecommunications service providers to provide video and Web conferencing solutions are in the early stage and only recently has the Company received significant revenue from this market segment. If rich media, Web conferencing and broadband video services fail to achieve broad commercial acceptance or if such acceptance is delayed, the Company’s business, financial condition and results of operations will be materially adversely affected. The Company anticipates that significant revenue and growth in the foreseeable future will come from the sale of its Click to Meet™ and MCU products and services. Broad market acceptance of these products and services is therefore critical to the Company’s operating success.

The Company faces potential delisting from The Nasdaq National Market. If delisting occurs, the market price and market liquidity of the Company’s common stock may be adversely affected.

The Company’s common stock currently is listed on The Nasdaq National Market. Pursuant to its rules, The Nasdaq National Market commenced procedures to delist the Company’s shares based on the shares trading below $1.00 per share on The Nasdaq National Market for a period of 30 consecutive trading days. In June 2002, the Company received notice from The Nasdaq National Market of its continued non-compliance with the Nasdaq rules and that its shares would be delisted from The Nasdaq National Market. The Company requested a written appeal hearing before a Nasdaq Listing Qualification Panel to review the delisting determination. In July 2002, the written appeal hearing was granted and a hearing date was set for August 8, 2002. The Company is awaiting the Panel’s determination from that hearing. If the Company’s appeal to The Nasdaq National Market for relief from compliance is unsuccessful, then the Company’s common stock will be delisted from The Nasdaq National Market, and the Company intends to apply to transfer its shares for trading on The Nasdaq Small Cap Market. On August 9, 2002, the last sale reported on the Nasdaq National Market System for the Company’s stock was at $0.44.

If delisting occurs the trading of the Company’s common stock is likely to be conducted on The Nasdaq Small Cap Market. If the Company fails to meet the qualification to transfer to The Nasdap Small Cap Market or fails to continue to meet the listing requirements under The Nasdaq Small Cap Market, the trading of the Company’s common stock is likely to be conducted on the OTC Bulletin Board, which will have an adverse affect on the market price of the Company’s common stock and on the ability of stockholders and investors to buy and sell the common stock. If delisting occurs, you may lose some or all of your investment.

Software developed by the Company or developed by others and incorporated by the Company into its products may contain significant undetected errors, especially when first released or as new versions are released. Although the Company’s software products are tested before commercial release, errors in the products may be found after customers begin to use the software. Any defects in the Company’s current or future products may result in significant decreases in revenue or increases in expenses because of adverse publicity, reduced orders, product returns, uncollectible accounts receivable, delays in collecting accounts receivable, and additional and unexpected costs of further product development to correct the defects.

The Company faces potential volatility in its common stock price.

The market price of the Company’s common stock has been extremely volatile in the past and, like that of other technology companies, is likely to be subject to significant volatility in the future, depending upon many factors, including:

• fluctuations in the Company’s financial results;

• technological innovations or new commercial products developed by the Company or its competitors;

• establishment of and success of corporate partnerships or licensing arrangements;

• announcements regarding the acquisition of technologies, products or companies;

• regulatory changes and developments that affect the Company’s business;

• developments or disputes concerning patent and proprietary rights and other legal matters;

• an adverse outcome from the SEC enforcement proceedings;

• issuance of new or changed stock market analyst reports and/or recommendations; and

• economic and other external factors.

One or more of these factors could significantly harm the Company’s business and decrease the price of its common stock in the public market. Severe price fluctuations in a company’s stock, including the Company’s stock, have frequently been followed by securities litigation. Such litigation can result in substantial costs and a diversion of management’s attention and resources and therefore could have a material adverse effect on the Company’s business, financial condition and results of operations. Past financial performance of the Company should not be considered a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.

The Company has a history of generating a large percentage of its revenue at the end of each quarterly accounting period.

Due to the way that many customers in the Company’s target markets allocate and spend their budgeted funds for acquisition of the Company’s products and other products, a large percentage of the Company’s business is booked at the end of each quarterly accounting period. Because of this, the Company may not be able to reliably predict order volumes or prepare orders for shipment on time. If the Company is unable to ship its customer orders on time, there could be a material adverse effect on the Company’s results of operations.

The Company’s success depends on the performance of participants in the Company’s distribution channels.

The Company currently sells its products through OEMs, distributors and resellers. The Company’s future performance will depend in large part on sales of its products through these distribution relationships, such as Net One, SBC Communications, Verizon and other key partners. Agreements with distribution partners generally provide for discounts based on the Company’s list prices, and do not require minimum purchases or restrict development or distribution of competitive products. Therefore, entities that distribute the Company’s products may compete with the Company. In addition, OEMs, distributors and resellers may not dedicate sufficient resources or give sufficient priority to selling the Company’s products. The Company additionally depends on its respective distribution relationships for most customer support, and expends significant resources to train its respective OEMs, distributors and resellers to support customers. These entities can generally terminate the distribution relationship upon 30 days notice. The loss of a distribution relationship or a decline in the efforts of a material distributor, or loss in business or cancellation of orders from, significant changes in scheduled deliveries to, or decreases in the prices of products sold to, any of these distribution relationships could have a material adverse effect on the Company’s results of operations.

The Company expects to rely on a limited number of large customer projects for its revenue in the future. Losing one or more of these customers may adversely affect the Company’s future revenue.

The Company depends on a limited number of large end-user projects for a majority of its revenue which has resulted in, and may in the future result in, significant fluctuations in quarterly revenue. The Company expects that revenue from the sale of products to large resellers and telecommunications service providers will continue to account for a

significant percentage of its revenue in any particular quarter for the foreseeable future. Additionally, a significant portion of Company’s sales of video networking products has historically been to government agencies, such as military and educational institutions, or to third parties using the Company’s products on behalf of government agencies. Government customers are often subject to budgetary pressures and may from time to time reduce their expenditures and/or cancel orders. The loss of any major customer, or any reduction or delay in orders by a customer, or the failure of the Company or its distribution partners to market the Company’s products successfully to new customers could have a material adverse effect on the Company’s business, financial condition and results of operations.

Because sales of some of the Company’s products require a lengthy sales effort and implementation cycle, revenue may be unpredictable and the Company’s business may be harmed.

Sales of some of the Company’s products have required and will continue to require an extended sales effort. For some projects the period from an initial sales call to an end-user agreement can range from six to twelve months, and can be longer. Therefore, the timing of revenue booking and recognition may be unpredictable. A lengthy delay in recognizing revenue could have a material adverse effect on the Company’s business, financial condition and results of operations.

Rapid technological change and evolving industry standards and regulations may impair the Company’s ability to develop and market its products and services.

Rapid technological change and evolving industry standards characterize the market for the Company’s products and services. The Company’s success will depend, in part, on its ability to maintain technological leadership and enhance and expand its existing product and services offerings. The Company’s success also will depend in part upon its ability and the ability of its strategic partners to comply with evolving industry standards. The Company’s products must meet a significant number of domestic and international video, voice and data communications regulations and standards, some of which are evolving as new technologies are deployed. The Company’s products are currently in compliance with applicable regulatory requirements. However, as standards evolve, the Company will be required to modify its products, or develop and support new versions of its products. In addition, telecommunications service providers require that equipment connected to their networks comply with their own environment and standards, which may vary from industry standards.

The Company’s ability to compete successfully is also dependent upon the continued compatibility and interoperability of its products with products and architectures offered by other vendors. The Company’s business, financial condition and results of operations would be materially adversely affected if it were unable in a timely manner to comply with evolving industry standards or to address compatibility issues. In addition, from time to time, the Company may announce new products, capabilities or technologies that have the potential to replace or shorten the life cycle of the Company’s existing product offerings. The announcement of product enhancements or new product or service offerings could cause customers to defer purchasing the Company’s products. In addition, the Company has experienced delays in the introduction of new products in the past and may experience additional delays in the introduction of products currently under development or products developed in the future. The failure of the Company to successfully introduce new products, product enhancements or services on schedule or in time to meet market opportunities, or customer delays in purchasing products in anticipation of new product introductions or because of changes in industry standards, could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company faces intense competition from other industry participants and may not be able to compete effectively.

The market for Web conferencing and networking products and services is extremely competitive. Because the barriers to entry in the market are relatively low and the potential market is large, the Company expects continued growth in existing competitors and the entrance of new competitors in the future. Many of the Company’s current and potential competitors have significantly longer operating histories and significantly greater managerial, financial, marketing, technical and other competitive resources, as well as greater name recognition, than that of the Company. As a result, these companies may be able to adapt more quickly to new or emerging technologies and changes in customer requirements and may be able to devote greater resources to the promotion and sale of their competing products and services.

As a result, the Company may not be able to compete successfully with existing or new competitors in the rich media Web conferencing and collaboration solutions market. The Company believes that its ability to compete successfully in this market will depend on a number of factors both within and outside its control, including:

• the timing of the introduction of new products and services by the Company and its competitors;

• the pricing policies of the Company’s competitors and suppliers;

• the Company’s ability to hire and retain highly qualified employees;

• continued investment in research and development;

• continued investment in sales and marketing; and

• the adoption and evolution of industry standards.

The Company’s business may be harmed if it is unable to protect its proprietary rights.

The Company’s success and ability to compete in the rich media Web conferencing and collaboration solutions market depends, in part, upon its ability to protect its proprietary technology. The Company may be unable to deter misappropriation of its proprietary technology, detect unauthorized use, and take appropriate steps to enforce its intellectual property rights.

The Company does not rely on patent protection for its products, and does not hold any patents, although it has filed a patent application relating to the initiation and support of video conferencing using instant messaging This patent application may not be approved, however, and even if issued by the United States Patent and Trademark Office, it may not give the Company an advantage over competitors. The Company’s adherence to industry-wide technical standards and specifications may limit its opportunities to provide proprietary product features. The Company currently licenses certain technology from third parties and plans to continue to do so in the future. The commercial success of the Company will depend, in part, on its ability to continue to obtain licenses to use third-party technology in its products.

The Company relies upon a combination of trade secret, copyright and trademark laws and contractual restrictions to establish and protect proprietary rights in its technology. The Company also enters into confidentiality and invention assignment agreements with its employees and enters into non-disclosure agreements with its consultants, suppliers, distributors and customers to limit access to and disclosure of its proprietary information. However, these statutory and contractual arrangements may not be sufficient to deter misappropriation of the Company’s proprietary technologies. In addition, independent third parties may develop similar or superior technologies to those of the Company. Furthermore, the laws of some foreign countries do not provide the same degree of protection of the Company’s proprietary information as do the laws of the United States.

Claims by third parties that the Company infringes their proprietary technology could prevent the Company from offering its products or otherwise hurt the Company’s business.

The commercial success of the Company also will depend, in part, on the Company not breaching third-party intellectual property rights. The Company licenses certain third-party technology for use in its products, but is subject to the risk of litigation alleging infringement of other third–party intellectual property rights. A number of companies have developed technologies or received patents on technologies that may be related to or be competitive with the Company’s technologies. The Company has not conducted a patent search relating to the technology used in its products. In addition, since patent applications in the United States are not publicly disclosed until the patent issues, applications may have been filed, which, if issued as patents, would relate to the Company’s products. The Company’s lack of patents may inhibit the Company’s ability to negotiate or obtain licenses from or oppose patents of third parties, if necessary.

The Company could incur substantial costs in defending itself and its customers against any intellectual property litigation, regardless of the merits of such claims. The Company may also be required by contract or by statutory implied warranties to indemnify its distribution partners and end-users against third–party infringement claims. Parties making infringement claims against the Company may be able to obtain injunctive or other equitable relief which could effectively block the Company’s ability to sell its products in the United States and abroad, and could result in an award of substantial damages. In the event of a successful claim of infringement, the Company, its customers and end-users may be required to obtain one or more licenses from third parties. The Company, or its customers, may not be able to obtain necessary licenses from third parties at a reasonable cost, or at all. The defense of any lawsuit could result in time-consuming and expensive litigation, damages, license fees, royalty payments and restrictions on the Company’s ability to sell its products, any of which could have a material adverse effect on the Company’s business, financial condition, and results of operations.

The Company is dependent on key personnel and must hire and retain skilled personnel.

The Company’s success is significantly dependent on the contributions of a number of its key personnel. The Company’s success depends to a significant degree on the services of Ralph Ungermann, its executive chairman of the board of directors, and Killko Caballero, its chief executive officer and president. The loss of the services of either of these individuals or any of the Company’s other key personnel could have a material adverse effect on the Company. The Company believes that its future success also will depend upon its ability to attract and retain additional highly skilled technical, managerial, manufacturing, sales and marketing personnel. Competition for these personnel is intense. The Company may not be able to anticipate accurately, or to obtain, the personnel that it may require in the future.

The Company’s reliance on third party manufacturers and suppliers could adversely affect the Company’s business.

The Company currently outsources the manufacturing of some of its products and purchases critical components for some of its products from single suppliers. The Company relies on several vendors to manufacture certain of its products. If one or more of these manufacturers experiences quality control or other problems, product shipments by the Company may be delayed. The Company does not have long-term agreements with suppliers, and its current suppliers are not obligated to provide components to the Company for any specific period, in any specific quantity or at any specific price, except as may be provided in a particular purchase order. Qualifying additional suppliers is a time consuming and expensive process, and there is a greater likelihood of problems arising during a transition period to a new supplier. If the Company is required to find replacements for its manufacturers or suppliers, this could result in short-term cost increases and delays in delivery, which could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company may not be able to continue to negotiate arrangements with its existing, or any future, manufacturers or suppliers on terms favorable to the Company.

The Company faces additional risks from its international operations.

The Company’s international business involves a number of risks that could adversely affect its operating results or contribute to fluctuations in those results. The Company’s revenue from international sales represented 30.2% of its total revenue in the six months ended June 30, 2002, 21% of its total revenue in 2001 and 12% of its total revenue in 2000. The Company intends to seek opportunities to expand its product and service offerings into additional international markets, although the Company may not succeed in developing localized versions of its products for new international markets or in marketing or distributing products and services in those markets.

The majority of the Company’s international sales are currently denominated in United States dollars. However, it is possible that a significantly higher level of future sales of the Company’s products may be denominated in foreign currencies. To the extent that the Company’s sales are denominated in currencies other than United States dollars, fluctuations in exchange rates may result in foreign exchange losses. The Company does not have experience in implementing hedging techniques that might minimize the Company’s risks from exchange rate fluctuations.

The Company’s international business also involves a number of other difficulties and risks, including risks associated with:

• changing economic conditions and political instability in foreign countries;

• export restrictions and export controls relating to the Company’s technology;

• compliance with existing and changing regulatory requirements;

• tariffs and other trade barriers;

• difficulties in staffing and managing international operations;

• longer payment cycles and problems in collecting accounts receivable;

• software piracy;

• seasonal reductions in business activity in Europe and certain other parts of the world during the summer months; and

• potentially adverse tax consequences.

The Company’s inability to secure additional funding could adversely effect its business.

In order to meet the Company’s anticipated working capital and Company’s capital expenditure requirements, the Company may need to raise additional funds through the issuance of equity securities in the future. If additional funds are raised through the issuance of equity securities, the percentage ownership of the stockholders of the Company will be reduced, stockholders may experience additional dilution, and the new equity securities may have rights, preferences or privileges senior to those of the holders of the Company’s common stock. Additional financing may not be available when needed or on terms favorable to the Company, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may be required to delay, reduce or eliminate some or all of its development programs for its products or services, and may be unable to take advantage of future opportunities or respond to competitive pressures, which could have a material adverse effect on the Company’s business, financial condition and operating results.

Control By Insiders

As of August 1 2002, the Company’s executive officers, directors and their affiliates beneficially owned approximately 10,146,579 shares or approximately 22% of the outstanding shares of the Company’s common stock, on an as-converted to common stock basis. As a result, these persons may have the ability to effectively control the Company and direct its affairs and business, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also have the effect of delaying, deferring or preventing a change in control of the Company, and making certain transactions more difficult or impossible absent the support of these stockholders, including proxy contests, mergers involving the Company, tender offers, open-market purchase programs or other purchases of common stock that could give stockholders of the Company the opportunity to realize a premium over the then prevailing market price for shares of common stock.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s market risk exposures as set forth in its Annual Report on Form 10-K/A for the year ended December 31, 2001, have not materially changed.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On April 23, 2001, the Company received notice of a stockholder’s derivative action filed in California Superior Court in the County of Santa Clara, alleging that, among other things, certain directors and officers of the Company sold shares of the Company’s common stock between January 21, 1999 and April 6, 1999, while in possession of material non-public information pertaining to the Company. The Company and the individual defendants demurred to the complaint, and moved to dismiss the action, or in the alternative to stay the action pending the outcome of the appeal in the related federal court class action or, if necessary, the investigation of the claims by the Company. The court granted the demurrer in part and denied it in part, granting plaintiff leave to file an amended complaint, and stayed the action pending the outcome of the appeal in the federal court class action. The court also ordered that certain limited discovery of documents could take place with respect to the filing of the amended complaint. In December 2001, the plaintiff moved for leave to take certain third–party discovery. The motion was denied by the court. Plaintiff filed an amended complaint on February 22, 2002. A hearing on the defendants’ demurrer to the amended complaint was scheduled to take place on May 21, 2002. The parties agreed to a continuance of the hearing in order to permit them to engage in settlement discussions with a third-party mediator. On July 25, 2002, the parties reached a tentative settlement of the derivative action, subject to a number of conditions, including approval of the settlement by a special committee of independent directors appointed by the Company’s Board of Directors and empowered to act on behalf of the Company with respect to the action. Under the terms of the tentative settlement, the Company would not pay any money to any party in connection with the settlement, nor would it pay any money as indemnification to present or former officers and directors in the event of a settlement of the SEC enforcement action described in the following paragraph.

Item 2. Changes in Securities

On March 29, 2002, the Company entered into a purchase agreement with certain investors pursuant to which the Company agreed to issue and sell an aggregate of 6,686,000 shares of Common Stock at a per share purchase price of $0.72, the closing bid price of the Common Stock as traded on The Nasdaq National Market (“Nasdaq”) on the date immediately prior to the date the parties signed the purchase agreement for the transaction, to the following investors: (i) Special Situations Fund III, L.P.; (ii) Special Situations Cayman Fund, L.P.; (iii) Special Situations Technology Fund, L.P.; (iv) Stratford Partners, L.P.; (v) Ralph Ungermann; (vi) Norman Gaut; (vii) Net One Systems Co., LTD; and (vii) Shigeru Ota. In addition, the Company agreed to issue warrants to the investors to purchase up to 3,343,001 shares of Common Stock exercisable at any time on or after October 12, 2002 through April 12, 2007, at an exercise price of $1.01 per share (a 40% premium to the fair market value on the date of issuance as determined by the Nasdaq rules). The closing occured on April 12, 2002, pursuant to which the Company issued the Common Stock and warrants for aggregate cash proceeds of $4,813,290. Pursuant to a registration rights agreement, the Company filed a Form S-3 registration statement (File No. 333-88058) with the SEC on May 10, 2002, as amended on May 29, 2002, covering the resale of the shares of its Common Stock issued and the Common Stock issuable upon exercise of warrants in the private placement. The SEC declared the registration statement effective on May 29, 2002.

The parties intended the private placement to be exempt from registration and prospectus delivery requirements under the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act and Regulation D promulgated thereunder. Each of the investors represented that it was an accredited investor and its intention was to acquire the securities for investment only and not with a view to distribution thereof. An appropriate legend was affixed to each Common Stock

certificate and warrant. Each investor was knowledgeable, sophisticated and experienced in making investment decisions of this kind and received adequate information about the Company or had adequate access, through its business relationships with the Company, to information about the Company.

Item 4. Submission of Matters to Vote of Security Holders

The Company’s Annual Meeting of Stockholders was held on June 14, 2002 (the “Annual Meeting”). The following matters were considered and voted upon at the Annual Meeting:

(1) the election of two director nominees, Adam Stettner and Robert W. Wilmot, to serve as directors until the 2005 Annual Meeting of Stockholders. The votes cast for and against such nominees were as follows:

Name:	For	Withheld
Adam Stettner	36,805,055	244,631
Robert W. Wilmot	36,793,628	256,058

(2) the approval of the Company’s Non-Employee Directors’ Stock Option Plan, as amended, to provide for (i) an increase in the aggregate number of shares of Common Stock authorized under such plan by 800,000 shares, to an aggregate of 1,500,000 shares, (ii) an increase in the initial and annual automatic grants under such plan to non-employee directors for service on the Board of Directors, (iii) an increase in the initial and annual automatic grants under such plan to non-employee directors for service on the Audit, Compensation and Nominating Committees of the Board of Directors, (iv) a change in the vesting schedule for all grants made pursuant to such plan, and (v) an extension of the option exercise period after a director ceases to be a member of the Board of Directors, an employee or consultant to the Company. There were 34,981,246 votes cast for approval and 2,003,077 votes cast against approval. There were 87,045 abstentions and 423,114 broker non-votes.

(3) the ratification of the appointment of PricewaterhouseCoopers LLP as independent accountants of the Company for its fiscal year ending December 31, 2002. There were 36,875,340 votes cast for ratification and 150,085 votes cast against ratification. There were 45,673 abstentions and 423,384 broker non-votes.

(4) the approval of a series of amendments to the Company’s Amended and Restated Certificate of Incorporation, as amended, to effect a reverse stock split of the Company’s Common Stock whereby each outstanding three, four or five shares would be combined, converted and changed into one share of Common Stock, with the effectiveness of one of such amendments, or the abandonment of the other amendments, or the abandonment of all of the amendments, as permitted under Section 242(c) of the Delaware General Corporation Law, to be determined by the Board of Directors. There were 13,509,523 votes cast for approval and 1,545,546 votes cast against approval. There were 56,581 abstentions and 22,247,038 broker non-votes.

Based on the voting results, the stockholders of the Company elected each of the directors nominated, approved the second matter and ratified the third matter. The stockholders of the Company did not approve the fourth matter.

Item 6. Exhibits and Reports on Form 8-K.

(a) Exhibits

Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation (1)
3.1(i)		Certificate of Ownership and Merger, effective August 3, 1998 (2)
3.1(ii)		Certificate of Designation of Series A Convertible Preferred Stock (3)
3.1(iii)		Certificate of Ownership and Merger, effective February 5, 2001 (4)
3.1(iv)		Certificate of Amendment of Restated Certificate of Incorporation filed on June 19, 2001 (4)
3.2		Amended Bylaws of the Company (5) (Exhibit 3.3)
4.1		Specimen Common Stock Certificate (6)
4.2		Specimen Series A Convertible Preferred Stock Certificate (3)
4.3		Warrant to purchase 2,614,377 shares of the Company’s Common Stock, dated May 7, 2001 issued by the Company to PictureTel Corporation (7)
4.4		Warrant to purchase 850,000 shares of the Company’s Common Stock, dated June 8, 2000 issued by the Company to Vulcan Ventures Incorporated (5) (Exhibit 10.5)
4.5		Warrant to purchase 18,750 shares of the Company’s Common Stock, dated April 11, 1997 issued by the Company to Silicon Valley Bank (1) (Exhibit 10.18)
4.6		Warrant to purchase the Company’s Common Stock, dated April 12, 2002, issued by the Company to the purchasers and in the amounts as set forth on Schedule A attached thereto (8) (Exhibit 4.3)
10.1		Registration Rights Agreement, dated April 12, 2002, by and among the Company and each of the purchasers listed therein (8) (Exhibit 4.2)
10.2		Amended and Restated Promissory Note and related Security Agreement executed on May 14, 2002 by Killko Caballero in favor of the Company. (9) (Exhibit 10.9)
10.3		First Virtual Communications Partner Agreement, dated April 1, 2002 between Net One Systems and the Company*
99.1		Certification, dated August 14, 2002, required by Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted)

(1) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Registration Statement on Form S-1 (File No. 333-38755), as filed on October 24, 1997.

(2) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 1998, as filed on August 11, 1998 (File No. 000-23305).

(3) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2000, as filed on August 14, 2000 (File No. 333-72533).

(4) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2001, as filed on August 15, 2001 (File No. 000-23305).

(5) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Annual Report on Form 10-K 405/A for the period ended December 31, 1999, as filed on April 15, 2000 (File No. 333-72533).

(6) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Registration Statement on Form S-1/A (File No. 333-38755), as filed on December 4, 1997.

(7) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2001, as filed on November 14, 2001 (File No. 000-23305).

(8) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Registration Statement on Form S-3 (File No. 333-88058), as filed on May 10, 2002.

(9) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Registration Statement on Form 10-Q for the period ended March 31, 2002, as filed on May 15, 2002.

* Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

(b) Reports on Form 8-K.

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 14, 2002	FIRST VIRTUAL COMMUNICATIONS, INC.

	By:	/s/ Timothy A. Rogers
		Timothy A. Rogers
		Chief Financial Officer and Senior Vice President
		(Duly Authorized Officer and Principal Financial and Accounting Officer)

Exhibit Index

Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation (1)
3.1(i)		Certificate of Ownership and Merger, effective August 3, 1998 (2)
3.1(ii)		Certificate of Designation of Series A Convertible Preferred Stock (3)
3.1(iii)		Certificate of Ownership and Merger, effective February 5, 2001 (4)
3.1(iv)		Certificate of Amendment of Restated Certificate of Incorporation filed on June 19, 2001 (4)
3.2		Amended Bylaws of the Company (5) (Exhibit 3.3)
4.1		Specimen Common Stock Certificate (6)
4.2		Specimen Series A Convertible Preferred Stock Certificate (3)
4.3		Warrant to purchase 2,614,377 shares of the Company’s Common Stock, dated May 7, 2001 issued by the Company to PictureTel Corporation (7)
4.4		Warrant to purchase 850,000 shares of the Company’s Common Stock, dated June 8, 2000 issued by the Company to Vulcan Ventures Incorporated (5) (Exhibit 10.5)
4.5		Warrant to purchase 18,750 shares of the Company’s Common Stock, dated April 11, 1997 issued by the Company to Silicon Valley Bank (1) (Exhibit 10.18)
4.6		Warrant to purchase the Company’s Common Stock, dated April 12, 2002, issued by the Company to the purchasers and in the amounts as set forth on Schedule A attached thereto (8) (Exhibit 4.3)
10.1		Registration Rights Agreement, dated April 12, 2002, by and among the Company and each of the purchasers listed therein (8) (Exhibit 4.2)
10.2		Amended and Restated Promissory Note and related Security Agreement executed on May 14, 2002 by Killko Caballero in favor of the Company. (9) (Exhibit 10.9)
10.3		First Virtual Communications Partner Agreement, dated April 1, 2002 between Net One Systems and the Company*
99.1		Certification, dated August 14, 2002, required by Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted)

(1) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Registration Statement on Form S-1 (File No. 333-38755), as filed on October 24, 1997.

(6) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Registration Statement on Form S-1/A (File No. 333-38755), as filed on December 4, 1997.

(8) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Registration Statement on Form S-3 (File No. 333-88058), as filed on May 10, 2002.

(9) Incorporated by reference to the corresponding or indicated exhibit to the Company’s Registration Statement on Form 10-Q for the period ended March 31, 2002, as filed on May 15, 2002

* Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.

EX-10.3 3 j4458_ex10d3.htm EX-10.3

EXHIBIT 10.3

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO ROLL 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

FIRST VIRTUAL COMMUNICATIONS

PARTNER

AGREEMENT

BETWEEN

Net One Systems

AND

FIRST VIRTUAL COMMUNICATIONS

VI - Effective July 2001

PARTNER AGREEMENT

TABLE OF CONTENTS

1.	DEFINITION

2.	APPOINTMENT

3.	TERM

4.	ORDER; ACCEPTANCE; DELIVERY

5.	OBLIGATIONS OF PARTNER & FIRST VIRTUAL COMMUNICATIONS

6.	OBLIGATIONS FOR THE TERM

7.	PRICES AND COMMERCIAL CONDITIONS/TERMS

8.	LICENSE FOR TRADEMARKS, SERVICE MARKS AND TRADE NAMES

9.	WARRANTIES

10.	LIMITATION OF LIABILITIES

11.	INDEMNIFICATION

12.	CONFIDENTIALITY

13.	TERMINATION

14.	COMPLIANCE WITH APPLICABLE LAW

15.	MISCELLANEOUS

EXHIBITS:
	A- PRODUCTS, SALES COMMITMENTS AND DISCOUNT LEVELS
	B- TRADEMARK LICENSE AGREEMENT
	C- END-USER SOFTWARE LICENSE AGREEMENT
	D- PRODUCT WARRANTY
	E- REQUIRED SUBLICENSE AGREEMENT PROVISIONS

VI - Effective July 2001

PARTNER AGREEMENT

FIRST VIRTUAL COMMUNICATIONS PARTNER AGREEMENT

This FIRST VIRTUAL COMMUNICATIONS Partner Agreement (this “Agreement”) is entered into as of April 1, 2002 (the “Effective Date”) by and between FIRST VIRTUAL COMMUNICATIONS, Inc. a Delaware corporation with a principal place of business at 3393 Octavius Drive, Suite 102, Santa Clara, CA 95054 (“FVC”) and Net One Systems (“ PARTNER”), a Japanese corporation with a principal place of business at Sphere Tower Tennoz, 2-8, Higashi Shinagawa 2-Chome, Shinagawa-Ku, Tokyo 140-8621, Japan.

IN CONSIDERATION OF THE MUTUAL PROMISES CONTAINED HEREIN, THE PARTIES AGREE AS FOLLOWS:

1.0 DEFINITIONS. The definitions listed below and elsewhere in this Agreement apply to both their singular and plural forms, as the context may require.

1.1 “Intellectual Property Rights” collectively means any and all copyrights, patents, patent registration rights, business processes, data rights, mask works, trademarks, trade names, service marks, service names, trade secrets, know-how, or other proprietary rights arising or enforceable under U.S. law, the laws of the Territory, or any other jurisdiction, or international treaty regime.

1.2 The “Products” shall mean those products, components and parts thereof offered for sale by FVC as listed in FVC’s then-current price list, which may be amended from time to time by FVC. The current list is set forth in Exhibit A, which is attached hereto.

1.3 The “Term” shall have the meaning set forth in Section 3.1 below.

1.4 “End-User Customer” shall mean a customer or second tier reseller of Partner.

1.5 The “Territory” shall mean the geographic area agreed in which the Partner is authorized to resell the Products and to promote the rich media web conferencing market and FVC’s trademarks and service marks. For purposes of this Agreement, the Territory shall be: Japan.

1.6 The “Software” shall mean the software programs, in object code form, included with the Products, as listed on Exhibit A, as amended from time to time.

2.0 APPOINTMENT.

2.1 Distribution Rights: Subject to Section 2.2 of the terms and conditions of this Agreement, FVC hereby appoints Partner, during the Term, as FVC’s exclusive distributor for the Products in the assigned Territory, and Partner hereby accepts such appointment. Partner shall have the non-transferable right to obtain products from FVC hereunder, and to market and distribute the Products to End-User Customers within the assigned Territory.

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2.2 Reservation of Rights: FVC expressly reserves the right to distribute all Products in the assigned Territory through local or global original equipment manufacturers (an “OEM”) and through Tomen Cyber Systems such products as indicated in the Second Extension Agreement dated March 25, 2002 with regard to the transaction with Telecommunications Advancement Organization of Japan (“TAO”).

3.0 TERM. This Agreement shall commence on the Effective Date, and shall continue for a twenty four (24) month period unless otherwise terminated earlier as provided in Section 13 (the “Term”). Upon termination of the first year of the Term of this Agreement, the parties may re-evaluate the terms of this Agreement, in light of the relationship between the parties, and if the parties mutually agree to any changes to such terms and conditions, the parties shall execute a written amendment hereto.

4.0 ORDER; ACCEPTANCE; DELIVERY.

4.1 Partner shall purchase the Products from FVC by issuance of its written purchase order, signed by an authorized representative of Partner. FVC shall provide Partner, within ten (10) days of receipt of Partner’s purchase order, with a written acceptance or rejection of Partner’s purchase order. Absent written rejection from FVC within ten (10) days of receipt of a purchase order, the purchase order shall be deemed accepted. Only accepted purchase orders shall be binding; provided, however, that acceptance shall not be unreasonably withheld. Partner may modify or cancel any unaccepted purchase order(s) without obligation to FVC by providing written notice of such modification or cancellation to FVC. However, such cancellation or modification shall not relieve Partner of its obligation to comply with the Minimum Purchase Commitment (as defined in Section 6.1).

4.2 FVC reserves the right, at its sole discretion, from time to time to discontinue or change any Product, or design or specifications thereof, or enhance elements of this agreement, with thirty (30) days prior notification in writing to Partner.

4.3 It is expressly agreed that the terms and conditions of this Agreement supersede and replace any and all pre-printed or other terms and conditions contained in any purchase order, acceptance, confirmation or other document issued among the parties unless otherwise agreed to in writing on a date subsequent hereto.

4.4 All Products delivered pursuant to the terms of this Agreement shall be suitably packed for shipment in FVC’s standard shipping cartons, marked for shipment to Partner’s address set forth above or at such other address as the parties agree upon, and delivered to the carrier agent F.O.B. FVC’s shipping location, at which time risk of loss shall pass to Partner. All freight, insurance, and other shipping expenses, as well as expenses for any special packing requested by Partner, will be paid by Partner. Notwithstanding anything to the contrary in this Agreement, including, without limitation, the delivery and passing of risk, title to the Products only (the Software being licensed, not sold, to Partner) will pass to Partner only upon full payment to FVC therefore. Until title in the Products has passed, Partner shall be in possession of the Products in a fiduciary capacity. FVC reserves the right to repossess and resell any Products to which it has retained title, and FVC’s consent to Partner’s possession of the Products and any right Partner may have to possession of the Products shall in any event cease if any sum owed by Partner to FVC is not paid to FVC by the date when it is due, or if Partner is otherwise in breach of this Agreement

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4.5 Software License

(a) Subject to the terms and conditions of this Agreement, FVC hereby grants to Partner a non-exclusive and non-transferable license, without the right to sublicense except to End-User Customers as expressly provided herein, in the assigned Territory during the Term to use the Software and related documentation provided by FVC solely for Partner’s internal use and solely in connection with the sale and promotion of the Products to End-User Customers. Partner shall not disclose, furnish, transfer or otherwise make available the Software or any portion thereof or related documentation provided by FVC in any form to any third party (other than to an End-User Customer) and shall not duplicate the Software or any part thereof or any such related documentation.

(b) Notwithstanding anything to the contrary expressed or implied in this Agreement, Partner is authorized to market, distribute or sublicense the Software only in object code form and only to End-User Customers located in the Territory who prior to taking possession of the Software have executed a “Sublicense Agreement” as set forth below. Each Sublicense Agreement must contain the required provisions set forth in Exhibit E attached hereto, as well as provisions which provide equivalent or greater protection of FVC’s Intellectual Property Rights and confidential information than those protections set forth in this Agreement. Partner shall maintain accurate records of all End-User Customers who have received copies of the Software and provide FVC with a copy of each executed Sublicense Agreement no later than thirty (30) days after its execution. Partner is responsible for ensuring that all End-User Customers abide by the Sublicense Agreement and shall promptly inform FVC of any breach thereof by any End-User Customer and assist FVC in enforcing its rights against any breaching End-User Customer.

(c) Title to and ownership of and all Intellectual Property Rights in or related to the Software, related documentation provided by FVC and all partial or complete copies of such Software and related documentation permitted to be made hereunder or under Sublicense Agreements shall at all times remain with FVC (or its licensors). This Agreement and Sublicense Agreements shall not be construed as a sale of any rights in the Software, related documentation provided by FVC, any copies thereof or any part thereof. All references in this Agreement or Sublicense Agreements to sale, resale or purchase of the Products, or references of like effect, shall, with respect to the Software and related documentation provided by FVC, mean sublicenses of the Software and such related documentation to End User Customers who have entered into Sublicense Agreements pursuant to this Section.

(d) Partner may not modify, translate, or otherwise generate any derivative works from the Products or Software. Partner shall not, and Partner shall not permit third parties to, disassemble, decompile or otherwise reverse engineer the Products or Software or attempt to reveal the trade secrets, know-how, source code, or structure underlying the Products or Software.

(e) FVC SHALL HAVE NO LIABILITY TO PARTNER OR ITS END-USER CUSTOMERS WITH RESPECT TO ANY CLAIM OF PATENT OR COPYRIGHT INFRINGEMENT WHICH (I) ARISES FROM THE COMBINATION OR UTILIZATION OF THE PRODUCT WITH ANY ITEM OF HARDWARE OR WITH ANY MACHINE, DEVICE, COMPUTER OR SOFTWARE NOT FURNISHED OR APPROVED BY FVC, OR (II) BASED UPON A PRODUCT WHICH HAS BEEN USED IN A MANNER FOR WHICH IT WAS NOT DESIGNED.

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5.0 OBLIGATIONS OF PARTNER AND FIRST VIRTUAL COMMUNICATIONS.

5.1 Partner shall use its best efforts to promote, market and distribute the Products in order to realize the maximum sales potential for the Products in the assigned Territory. Partner will not accept orders from outside the assigned Territory without the express written consent of FVC. Partner shall be solely responsible for all of its costs and expenses related to advertising, marketing, promoting, and distributing the Products, including all taxes associated with the marketing, distribution and delivery of the Products ordered hereunder, including but not limited to sales, use, stamp-duty, excise, value-added, withholding and similar taxes and all customs, duties or other governmental impositions (“Taxes”). Partner may also be eligible to receive marketing co-op funds, in accordance with the guidelines set forth in Exhibit F.

5.2 To the maximum extent allowed under applicable law, Partner shall not, during the Term, advertise, promote, market, sell or otherwise transfer (i) the Product outside the Territory, or (ii) any product or service which is competitive with the Product. Partner may advertise, promote, market, sell or otherwise transfer a competitive product, if Partner obtains FVC’s prior written approval on a product-by-product basis.

5.3 FVC shall provide Partner with manuals for the Products free of charge via online access to the Internet. Such access will be subject to password protection in order to restrict access and use of such manuals to Partner or its End-User Customers.

5.4 Upon execution of this Agreement and no later than on the first day of each calendar quarter thereafter, Partner shall provide to FVC a forecast of Partner’s anticipated quarterly requirement for Products for the next six (6) month period. Partner agrees to provide such forecasts in form and format as may be reasonably requested by FVC, including machine-readable form.

5.5 Partner agrees to provide first and second level support to End-User Customers and all End-User Customers’ questions shall be directed to and addressed by Partner. Partner shall keep FVC informed as to problems encountered and resolutions proposed and shall communicate promptly to FVC any and all modifications, design changes or improvements to the Product suggested by any End User, or any employee or agent of Partner. Partner further agrees that such information shall be deemed FVC’s Confidential Information as governed under this Agreement. First and second level support is generally defined as support-related questions that can be answered by simply reading FVC product manuals, “read me” documents, Technical Support web page and/or by following logical debugging procedures. Partner may request third level (more complex) support assistance from FVC’s technical service representatives by telephone and/or e-mail. These representatives are available during FVC’s normal business hours (8:00 am - 8:00 PM PT) for reasonable consultation with respect to the use of the Products. Only Partner’s personnel who have been specifically authorized by FVC will request such third level support assistance.

5.6 Partner agrees to send, at Partner’s sole expense, appropriate personnel to the Product technical and sales training offered by FVC, in order to develop such personnel’s ability to provide pre-sales support as well as first and second level post-sales support on FVC products to End-User Customers.

5.7 If not already in place, Partner will establish access to Internet e-mail and the Worldwide Web to facilitate communications regarding technical and sales information and support.

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6.0 OBLIGATIONS FOR THE TERM.

Partner and FVC agree to fulfill the following obligations during the Term:

6.1 Minimum Purchase Commitment. Partner agrees to sell and support the complete line of FVC’s rich media web conferencing products and services. Partner shall purchase from FVC a minimum purchase amount as set forth on Exhibit A (the “Minimum Purchase Commitment”). If Partner fails to meet this Minimum Purchase Commitment, then FVC shall notify Partner, in writing, of such failure (a “Failure Notice”) and Partner shall have […***…] to purchase Products from FVC in order to meet such Minimum Purchase Commitment. If Partner fails to meet such Minimum Purchase Commitment in such […***…] period then FVC shall have the right to renegotiation the terms and conditions of this Agreement. Partner agrees that […***…] is made in accordance with […***…].

6.2 Partner shall purchase from FVC a sufficient level of Products in order to demonstrate, test, prototype and train staff. Partner shall also develop and maintain sufficient knowledge of the industry, the Products, the Software, complementary product offerings, and competitive offerings (including specifications, features, and functions) so as to be able to demonstrate, differentiate and support the Products to End-User Customers. Partner shall, at FVC’s request, take an active part in any of FVC’s sales programs and marketing campaigns.

6.3 Designated representatives of Partner and FVC shall meet on a monthly basis to discuss sales of FVC products, such discussions shall include Point of Sale (POS) information by region into which the sold items are delivered and installed.

7.0 PRICES AND COMMERCIAL CONDITIONS/TERMS.

7.1 The prices of the Products and accompanying Product support to Partner shall be subject to discount levels as outlined in Exhibit A off of FVC’s Recommended Selling Price List, which will be amended by FVC from time to time.

7.2 Full payment for the Products (including any freight, taxes or other applicable costs initially paid by FVC but to be borne by Partner) shall be made by Partner to FVC net […***…] from the date of FVC shipment of the Products. All billing and payments shall be in

U.S. Dollars. Such payments may be made by a wire transfer to FVC’s bank account, at the following:

Bank Name:

Bank Address:

CA 95054Beneficiary Name: [...***...]

Account #:

ABA/Routing #:

[*] = CONFIDENTIAL TREATMENT REQUESTED

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7.3 Payment terms for Partner’s Sales Commitments for the [……], shall be due and payable [……] from the end date of each respective [……]. Payment terms of installment payment shall be due net [……] from the date of FVC shipment of the Products.

7.4 Late payments shall accrue interest from the date due until the date paid at a rate of [……] percent [……] per month or the maximum rate permitted by applicable law, whichever is less.

7.5 Prices for the Products are F.O.B. FVC’s designated facilities in the United States. Prices are exclusive of all applicable Taxes. Partner shall pay all Taxes associated with the sale and delivery of all Products, and any collection costs, penalties and interest, associated with the Taxes.

7.6 FVC shall be free to change the published list prices and discount schedules for any Products sold under this Agreement at any time. In the event that FVC increases its prices, all Products shipped after the effective date of a price increase shall be at the new higher price except that FVC shall honor all written Partner Purchase Orders received for Products prior to notice of the price increase at the prices in effect at the time the Purchase Order was received. In the event that FVC […***…] Products ordered.

7.7 Partner is free to determine its own price for the sale of the Products and license of the Software. Although FVC may publish suggested price lists, they are suggestions only and are not binding in any way. Partner’s sole compensation for its activities under this Agreement is derived from the difference between the prices paid by Partner for the Products and the price at which such Products are sold and licensed by Partner to End-Users Customers.

8.0 LICENSE FOR TRADEMARKS, SERVICE MARKS AND TRADE NAMES.

8.1 Trademark License. Subject to this Agreement and the additional provisions in Exhibit B, FVC hereby grants to Partner a license to use and display the FVC trademarks, tradenames, service marks and service names listed in Exhibit B (collectively, the “Trademarks”) solely in connection with the marketing of the Products during the Term. Partner shall also have the right to represent that it is an authorized distributor of the Products and to advertise such under the Trademarks.

8.2. Ownership and Restrictions. Partner acknowledges that FVC (or its licensor) is the owner of the Trademarks and all Intellectual Property Rights and goodwill associated therewith, and Partner agrees to do nothing inconsistent with such ownership. The nature and quality of all Partner’s activities in connection with the Products, this Agreement and the Trademarks, shall be of the highest standards and quality and Partner shall do nothing to degrade the ownership, prestige, image, reputation and goodwill of FVC or the Trademarks. Partner shall comply with FVC’s instructions with respect to the use of the Trademarks and the application of the Trademarks to any marketing materials. FVC, at its discretion, may terminate this trademark license if at any time it determines that Partner is using the Trademarks in a manner that violates FVC’s then in effect trademark policy. Partner may not remove any copyright, trademark or other notice of ownership of the Intellectual Property Rights associated with the Products which has been affixed by FVC. Partner shall not adopt or attempt to register the Trademarks, or any

[*] = CONFIDENTIAL TREATMENT REQUESTED

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name, design or symbol confusingly similar thereto, including without limitation as part of, or in connection with Partner’s business, private, substitute or other name or any design, symbol, product, service, letterhead, business card or other means of identification. Promptly following termination or expiration of this Agreement for any reason, Partner shall take all actions necessary to transfer and assign to FVC all rights, title and interest in and to the Trademarks and goodwill related thereto which Partner may have acquired as a result of this Agreement and shall promptly discontinue all uses of the Trademarks. Partner shall cooperate with FVC if FVC (or its licensor) wishes to register the Trademarks in the Territory or in any other country, including without limitation execute appropriate documents and provide other reasonable assistance which FVC (or its licensor) may reasonably require to that end.

9.0 WARRANTIES.

9.1 FVC warrants, to Partner only, that the Products sold to Partner for distribution in the assigned Territory, as to hardware only, shall conform in all material respects to the published specifications and shall be free from material defects in design, material and workmanship for a period of one (1) year from shipment to End-User Customer (the “Warranty Period”). FVC agrees to provide the warranty obligations with respect to the Software Products as set forth in and in accordance with FVC’s current End-User Sublicense Agreement, a sample of which is attached in Exhibit C. In the event that any Product is found to be defective, FVC shall, at its sole discretion, either replace or repair the defective Product at its cost. Partner shall make no additional warranties on behalf of FVC. FVC reserves the right to change its warranty policies at any time. Partner acknowledges that the replacement Products provided by FVC may be fully operational refurbished units. Under no circumstances shall the warranties set forth in this Section 9 apply to any Product that has been sold outside the assigned Territory, customized or modified without FVC’s written consent, or damaged or misused

9.2 In the event any Product is found nonconforming during the Warranty Period, Partner shall notify FVC, in writing, of the serial numbers of such nonconforming Products and reason for nonconformance and shall request from FVC a return merchandise authorization (“RMA”) to return the nonconforming Product. FVC shall issue such RMA promptly upon request. Within ten (10) days after receipt of the written RMA number, Partner shall return to FVC the rejected Product in accordance with FVC’s shipping instructions, in its original shipping carton with the RMA number displayed on the outside of the carton. FVC reserves the right to refuse to accept any rejected Product that does not bear an RMA number on the outside of the carton. As promptly as possible, but no later than thirty (30) days after receipt by FVC of properly rejected Product, FVC shall, at its option and expense, either (i) repair or replace the nonconforming Product with a functional replacement, or (ii) refund to Partner the purchase price of such rejected Product. FVC shall be liable for, and bear all costs associated with, the shipment, repair, replacement or refund of all nonconforming Products under this Section 9.2. Partner hereby agrees that the remedy in this Section 9.2 shall be its sole recourse or remedy in the event of any Product nonconformity. Warranty repairs or replacements shall not constitute an extension of the original Warranty Period. Any repaired or replaced Product reshipped to Partner pursuant to this Section 9.2 shall not count toward the Minimum Purchase Commitment...

9.3 Partner will expressly indicate to their End-User Customers that they must look solely to Partner in connection with any problems, warranty claims, or other matters concerning the Product.

9.4 Partner Warranties. Partner hereby represents, warrants and covenants the following on a continuing basis during the Term:

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(f) Partner is and shall remain a Japanese corporation duly organized, validly existing and in good standing under the laws of Japan with all necessary corporate power and authority to conduct its business and duly qualified to transact business in each jurisdiction in the Territory and perform this Agreement to the full extent contemplated herein. Furthermore, the individual executing this Agreement is an authorized representative of Partner with the power to bind Partner to this Agreement;

(g) Except as set forth in Section 14.1, no consent, approval, license, permit, authorization, declaration, filing, registration, or similar formality of any kind is or shall be required to be made or obtained in the Territory by either party in order to lawfully implement this Agreement;

(h) Neither the execution or implementation of this Agreement, nor any of the terms, conditions, warranties, liability or warranty limitations or exclusions in this Agreement, nor the performance by Partner of its obligations under this Agreement, does or will (i) contravene any provision of Partner’s organizational documents; or (ii) conflict with any agreement, understanding or obligation to which Partner is a party; or (iii) to the best of Partner’s knowledge, any applicable law or regulation in the Territory;

(i) Partner is in good financial condition, solvent and able to pay its bills when due and shall retain the ability to order and pay for all Products Partner is obliged to purchase hereunder. From time to time, on reasonable notice by FVC, Partner shall furnish financial reports as necessary to determine distributor’s financial condition;

(j) Partner shall not make any statement, representation, or warranty or assume any obligation or liability regarding FVC or the Products which is not previously authorized in writing by FVC;

(k) Partner shall perform and implement this Agreement and use the licenses granted to it by FVC under this Agreement only for lawful purposes and in accordance with applicable law and regulations and without violating any third party rights.

9.5 ALL REPRESENTATIONS, WARRANTIES AND COVENANTS MADE BY FVC IN THIS AGREEMENT ARE MADE SOLELY TO PARTNER AND NOT TO ANY END-USER CUSTOMER OR OTHER THIRD PARTY. THE FOREGOING WARRANTIES IN THIS SECTION 9 ARE THE ONLY WARRANTIES OFFERED BY FVC HEREUNDER. TO THE MAXIMUM EXTENT ALLOWED UNDER APPLICABLE LAW, FVC HEREBY DISCLAIMS ALL OTHER EXPRESS, IMPLIED, STATUTORY OR OTHER WARRANTIES, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. IF APPLICABLE LAW DOES NOT ALLOW ANY OF THE DISCLAIMERS OR LIABILITY LIMITATION SET FORTH IN THIS AGREEMENT, THEN SUCH DISCLAIMERS OR LIMITATIONS SHALL NOT APPLY. WITHOUT LIMITING THE GENERALITY OF THE FORGOING, FVC DOES NOT MAKE, AND EXPRESSLY DISCLAIMS, ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED, RELATED TO ANY THIRD PARTY INTELLECTUAL PROPERTY, TECHNOLOGY OR INFORMATION EMBEDDED IN THE PRODUCTS OR USED OR PROVIDED IN CONNECTION WITH THIS AGREEMENT. FVC SHALL HAVE NO LIABILITY TO ANY END-USER CUSTOMER FOR REPRESENTATIONS OR WARRANTIES MADE BY PARTNER TO SUCH END-USER CUSTOMER THAT ARE INCONSISTENT WITH OR IN EXCESS OF THE WARRANTY IN SECTION 9.1.

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10.0 LIMITATION OF LIABILITY. IN NO EVENT SHALL FVC BE LIABLE TO PARTNER, AN END-USER CUSTOMER, OR ANY THIRD PARTY FROM ANY CAUSE WHATSOEVER, AND REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT OR IN TORT (INCLUDING NEGLIGENCE), FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, OR EXEMPLARY DAMAGES (INCLUDING WITHOUT LIMITATION ANY LOSS OF PROFITS, REVENUES, SAVINGS, BUSINESS INTERRUPTION, LOSS OF DATA, OR LOSS OF USE DAMAGES) ARISING FROM OR RELATED TO THE MANUFACTURE, SALE, OR SUPPLY OF THE PRODUCTS, EVEN IF FVC HAS BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES OR LOSSES. IN NO EVENT SHALL FVC’S CUMULATIVE LIABILITY EXCEED THE AMOUNT PAID BY PARTNER TO FVC UNDER THIS AGREEMENT. PARTNER UNDERSTANDS AND AGREES THAT THE LIMITED WARRANTY, LIMITED REMEDIES AND LIMITED LIABILITY PROVISIONS OF THIS AGREEMENT ARE FUNDAMENTAL PARTS OF THE BASIS OF FVC’S BARGAIN HEREUNDER AND THAT FVC WOULD NOT ENTER INTO THIS AGREEMENT ON THESE TERMS IN THE ABSENCE OF SUCH PROVISIONS.

11.0 INDEMNIFICATION.

11.1 FVC agrees to indemnify and hold Partner harmless from and against any and all claims, actions, losses or damages, including reasonable attorney’s fees and costs arising from a third party claim alleging: (a) the infringement of a third party’s U.S. patent or copyright; (b) a breach by FVC of a warranty as set forth in Section 9.1 above; or (c) personal injury and product liability, which arise in whole or in part from the normal and intended use of a Product hereunder by a End-User Customer. This indemnification obligation is conditioned upon the following: Partner agrees to promptly notify FVC in writing of any such claim and provide reasonable assistance at FVC’s expense in the defense or settlement thereof, and provided further that FVC shall have sole control of the defense and all related settlement negotiations with respect hereto. FVC shall not be responsible for indemnification for any settlement made without its written consent.

11.2 If a Product or any part thereof becomes, or in FVC’s opinion is likely to become, the subject of a claim of infringement of an intellectual property right of a third party, Partner shall permit FVC, at its sole option and expense, (i) to procure for Partner or its End-User Customers the right to continue using such Product, (ii) to replace or modify such Product so that it becomes non-infringing, or (iii) to grant Partner a refund for such product as depreciated in accordance with the straight line method of depreciation for three years. The foregoing states FVC’s total liability and Partner’s sole and exclusive remedy for any and all claims Partner may have against FVC arising from or relating to such infringement.

11.3 Notwithstanding any limitations set forth in this Agreement, Partner shall indemnify and hold FVC harmless from and against all claims, liabilities, damages, losses and expenses, including reasonable attorney’s fees, which FVC may incur, arising from or relating to third party claims based on the conduct of Partner’s operations under this Agreement, including but not limited, to any breach by Partner of this Agreement.

11.4 NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, FVC SHALL HAVE NO LIABILITY TO PARTNER OR ITS END-USER CUSTOMERS WITH RESPECT TO ANY CLAIM OF PATENT, COPYRIGHT OR ANY OTHER INTELLECTUAL PROPERTY RIGHT INFRINGEMENT WHICH (I) ARISES FROM THE COMBINATION OR

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UTILIZATION OF THE PRODUCT WITH ANY ITEM OF HARDWARE OR WITH ANY MACHINE, DEVICE, COMPUTER OR SOFTWARE NOT FURNISHED OR APPROVED BY FVC, (II) BASED UPON A PRODUCT WHICH HAS BEEN USED IN A MANNER FOR WHICH IT WAS NOT DESIGNED, OR (III) USE OF A SUPERSEDED OR ALTERED RELEASE OF A PRODUCT IF SUCH INFRINGEMENT WOULD HAVE BEEN AVOIDED BY THE USE OF CURRENT UNALTERED RELEASES OF THE PRODUCT THAT FVC PROVIDES TO PARTNER OR ITS END-USER CUSTOMERS.

12.0 CONFIDENTIALITY.

12.1 It is expected that the parties will disclose to each other certain confidential information (“Confidential Information”) and each party recognizes the value and importance of the protection of the other’s Confidential Information. All Confidential Information of one party (the “Disclosing Party”) disclosed to the other party (“Recipient”) shall remain the sole property of the Disclosing Party (or its licensors), which shall own all rights, title, interest and Intellectual Property Right therein. Only information which is identified as confidential pursuant to the next paragraph shall be deemed Confidential Information hereunder. The pricing and other terms of this Agreement shall be FVC’s Confidential Information.

12.2 A Disclosing Party may designate information as confidential by: (a) stamping written information or other physical media as “Confidential” prior to disclosure; (b) indicating in the visual display of a program that the program is confidential; (c) identifying oral information as confidential at the time of disclosure to Recipient, or (d) notifying the Recipient in writing prior to disclosure that certain specifically identified types of information are considered to be confidential.

12.3 Except as expressly allowed in this Agreement, both parties agree not to duplicate in any manner the other’s Confidential Information or to disclose it to any third party or to any of their employees not having a need to know same to implement this Agreement. Each Recipient agrees to keep Disclosing Party’s Confidential Information in a safe and secure place; protect it from unauthorized use or disclosure, and monitor access to it. Recipient shall use the other’s Confidential Information solely for the implementation of this Agreement and for no other purpose, whether for Recipient’s own benefit or the benefit of any third party. Each party shall immediately notify the other upon discovery of any loss or unauthorized disclosure of the Confidential Information of the other party.

12.4 Each party’s obligations under this Agreement with respect to any portion of the other party’s Confidential Information shall terminate or not apply when Recipient can prove that it: (i) is or subsequently becomes publicly available or known to Recipient without breach of any obligation owed to the Disclosing Party; (ii) became known to the Recipient prior to the Disclosing Party’s disclosure of such information to the Recipient; (iii) is used by the Recipient to the limited extent necessary to enforce any of its rights, claims or defenses under, or as otherwise contemplated in, this Agreement; or (iv) was communicated in response to a valid order by a court or other governmental body, by subpoena, law or other such rules, or was necessary to establish the rights or obligations of either party under this Agreement and such disclosure complies with the requirements set forth below

12.5 If the Recipient or any of the Recipient’s representatives is required to disclose any of the Disclosing Party’s Confidential Information pursuant to Section 12.3, the Recipient will, as soon as reasonably practicable, provide the Disclosing Party with written notice of the applicable

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subpoena, law, or rule so that the Disclosing Party may seek a protective order or other appropriate remedy. The Recipient and its representatives will cooperate fully with the Disclosing Party to obtain any such protective order or other remedy. If the Disclosing Party elects not to seek, or is unsuccessful in obtaining, any such protective order or other remedy in connection with any requirement that the Recipient disclose Confidential Information, and if the Recipient furnishes the Disclosing Party with a written opinion of reputable legal counsel confirming that the disclosure of Confidential Information is required pursuant to applicable subpoena, law or rule, then the Recipient may disclose such Confidential Information to the extent required; provided, however, that the Recipient and its representatives will use commercially reasonable efforts to ensure that such Confidential Information is treated confidentially by each person or entity to whom it is disclosed.

12.6 Confidential Information shall not be reproduced or used in any form or for any purpose except as required to implement this Agreement. Any reproduction of any Confidential Information of the Disclosing Party by Recipient shall remain the property of the Disclosing Party and shall contain any and all confidential or proprietary notices or legends which appear on the original.

13.0 TERMINATION.

13.1 This Agreement may be terminated by FVC or by Partner upon thirty (30) days written notice to the other party in the event that the other party materially breaches the terms and conditions hereof and fails to cure said breach within the notice period provided herein; except that a party may terminate this Agreement immediately, upon written notice for a breach of Section 4.5, 4.6, 9.4, 12, 14 or 15.6. Termination of this Agreement shall not affect the rights and obligations, including payment or delivery obligations under any outstanding purchase orders, of the parties accruing prior thereto.

13.2 If FVC or Partner shall become bankrupt or insolvent, or if a petition of bankruptcy is filed against either party, or if a receiver is appointed for either party, or if the ownership or control of either party is materially changed, the other party shall have the right to terminate this Agreement immediately upon written notice to such other party.

13.3 Any termination of this Agreement by FVC or Partner under this Section 13 herein shall not constitute an election of remedies by the terminating party and the terminating party shall, in addition, have all other remedies provided at law.

13.4 Upon termination of this Agreement for any reason or upon expiration hereof, each party shall promptly return to the other party all Confidential Information, as defined in Section 12 herein, provided during the Term. Any outstanding payment obligation and Sections 1, 4.5(b), 4.5(c), 4.5(d), 4.5(e), 9.6, 10, 11, 12, 13.4, 14, and 15 shall survive any termination or expiration of this Agreement. Licenses to End-User Customers shall also survive.

14.0 COMPLIANCE WITH APPLICABLE LAW.

14.1 Partner warrants, represents and covenants to FVC, for the duration of the Term, that it will comply with all applicable laws and regulations in the implementation of this Agreement, including (i) obtaining any and all approvals, registrations, licenses, certifications, permits, or other clearances required prior to the development, marketing, sale, licensing or any other transfer or use of any Product, and otherwise taking all necessary actions so that all

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Products fully satisfy industry or any country specific standards, which are applicable to any Product; and (ii) otherwise complying with any and all applicable national, federal, regional, state, or local law, statute, ordinance, rule, environmental, communications or other regulation, judgment, decree, requirement, order, procedure, or public policy of any legislative, judicial, administrative, governmental, or regulatory body, agency, or authority of any kind, in any and all jurisdictions in the Territory. Without limiting the generality of the foregoing:

14.2 Government Approval and Registration. Partner shall take all necessary steps to gain official government and industry acceptances required in connection with this Agreement and the use, manufacture and sale of the Products. If any approval or registration of this Agreement (the “Required Registrations”), shall be required, either initially or at any time during the Term, in order to give this Agreement legal effect in the Territory or otherwise fully effectuate this Agreement in accordance with its intended purpose, Partner agrees, at its sole expense, to take whatever steps may be necessary to secure such Required Registration, immediately and prior to commencing any activities which are subject to such approval or registration.

14.3 Export Controls. Partner shall not, directly or indirectly, export or re-export, or knowingly permit the export or re-export of the Products or any component thereof, or any other items, to any country for which the United States Export Administration Act or any regulation thereunder, or any other similar United States law or regulation, including without limitation the United States Arms Export Control Act, requires an export license or other United States governmental approval, unless the appropriate export license or approval has first been obtained.

14.4 Corrupt Practices. Partner shall not, directly or indirectly, make, offer or agree to make or offer on behalf of FVC, any loan, gift, donation or other payment, directly or indirectly, whether in cash or in kind, for the benefit of or at the direction of any candidate, committee, political party, political function or government or government subdivision, or any individual elected, appointed or otherwise designated as an employee or officer thereof, for the purposes of influencing any act or decision of such entity or individual or inducing such entity or individual to do or omit to do anything in order to obtain or retain business or other benefits in violation of the United States Foreign Corrupt Practices Act.

14.5 Boycott. Partner shall not, directly or indirectly, take any action that would cause FVC to be in violation of United States anti-boycott laws under the United States Export Administration Act or the United States Internal Revenue Code, or any regulation thereunder.

15.0 MISCELLANEOUS.

15.1 Governing Law. This Agreement shall be governed, construed and enforced solely and exclusively in accordance with the laws of the State of California, USA, without regards to its conflict of laws principles. The parties agree that the United Nations Convention on Contracts for the Sale of International Goods shall not apply to this Agreement.

15.2 Arbitration. In the event there is a dispute between the parties arising out of or otherwise relating to this Agreement, the parties agree to promptly meet in good faith to try to resolve such dispute, and to escalate the dispute to senior management of each party for resolution. Any and all such disputes that cannot be so resolved by the parties within ten (10) days following such meeting, shall be settled solely and exclusively by arbitration in Santa Clara,

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California, USA pursuant to the commercial rules then in effect of the International Chamber of Commerce. The merits of the dispute shall be resolved in accordance with the laws of the State of California, USA. The arbitration shall be conducted by an arbitration panel consisting of three (3) arbitrators, each of whom shall be knowledgeable in the subject matter hereof. Each party shall select one (1) of the arbitrators, and the two (2) selected arbitrators shall select the third arbitrator. The arbitration shall be conducted in the English language, and all documents shall be submitted in English or be accompanied by an English translation. The arbitrators will provide a written explanation to the parties of any arbitration award. Any decision rendered by the arbitration panel shall be binding, final and conclusive upon the parties, and a judgment thereon may be entered in, and enforced by, any court having jurisdiction over the party against which an award is entered or the location of such party’s assets, and the parties hereby irrevocably waive any objection to the jurisdiction of such courts based on any ground, including without limitation, improper venue or forum non-conveniens. The parties and the arbitration panel shall be bound to maintain the confidentiality of this Agreement, the dispute and any award, except to the extent necessary to enforce any such award. The prevailing party, if a party is so designated in the arbitration award, shall be entitled to recover from the other party its costs and fees, including attorneys’ fees, associated with such arbitration. Except where clearly prevented by the subject matter of the dispute, both parties shall continue performing their respective obligations under this Agreement while this dispute is being resolved.

Notwithstanding the foregoing, nothing contained in this Agreement shall prevent a party from seeking injunctive or other equitable relief from any court of competent jurisdiction to protect such party’s rights under this Agreement, regardless of whether arbitration or other legal proceedings have commenced.

15.3 Rights. The waiver of any right accruing to any party hereunder by failure of that party to exercise that right in a given instance, or delay in exercising that right, shall not be deemed a waiver of said right in future instances of a similar nature.

15.4 Notice. With the exception of notification of termination or non-renewal pursuant to Section 14 herein, which shall be made by registered air mail, return receipt requested or other method which provides for proof of receipt, all notices, requests or other communications which are necessary or desirable in connection with this Agreement shall be acceptable if delivered in person or by facsimile, telex or other telegraphic means addressed to the receiving party, at its address appearing on the first page herein. Delivery shall be deemed effective when the communication is received by the party to whom it is addressed.

15.5 Amendments. No modification, termination, extension, renewal or waiver of any provisions of this Agreement shall be binding upon any party unless made in writing and signed by an authorized officer or representative of each of the parties.

15.6 Independent Contractor. No party shall, for any purpose, be deemed to be an agent of the other party and the relationship among the parties shall only be that of independent contractors. No agency, employment, partnership, franchise, or other relationship is created hereunder. Except as expressly provided in this Agreement, no party shall have any right or authority to assume or create any obligations or to make representations or warranties on behalf of the other party in any respect whatsoever.

15.7 Force Majeure. No party shall be liable to any other party for failure or delay in the performance of any of its obligations under this Agreement for the period and to the extent that such

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failure or delay is caused by riots, curtailments, civil commotion, wars, hostilities between nations, governmental laws, orders or regulations, acts of God, storms, fires, strikes, explosions or other similar or different contingencies beyond the reasonable control of the respective party.

15.8 Non-assignability. Partner shall have no right to transfer or assign any rights or obligations hereunder without the written consent of FVC, such consent not to be unreasonably withheld or delayed. FVC may freely assign this Agreement provided that any such assignee agrees in writing to be bound by the terms of this Agreement. Any assignment or transfer in violation of this Section 14.8 is null and void.

15.9 Publicity. Partner will not publish or otherwise disseminate any news release or other marketing material that references FVC without the FVC’s prior written consent, which consent will not be unreasonably withheld or delayed.

15.10 Attorneys’ Fees. In the event that any action or proceeding is brought in connection with this Agreement, the prevailing party shall be entitled to recover its costs and reasonable attorneys’ fees following a final judgment or arbitration award.

15.11 Agreement in English. The parties acknowledge that this Agreement is drafted and executed in, and shall be solely governed by the English language, which shall control, in all respects, the construction and interpretation of this Agreement.

15.12 Severability. If one or more provisions in this Agreement are ruled entirely or partly invalid or unenforceable by any court or governmental authority of competent jurisdiction, then: (i) the validity and enforceability of all provisions not ruled to be invalid or unenforceable shall remain unaffected; (ii) the effect of such ruling shall be limited to the body making the ruling; (iii) the provision(s) held wholly or partly invalid or unenforceable shall be deemed amended, and the Parties shall reform the provision(s) to the minimum extent necessary to render them valid and enforceable in conformity with the parties’ intent as manifested herein; and (iv) if the ruling, or the controlling principle of law or equity leading to the ruling, is subsequently overruled, modified, or amended, then the provision(s) in question, as originally set forth in this Agreement, shall be deemed valid and enforceable to the maximum extent permitted by the new controlling principle of law or equity. WITHOUT LIMITING THE FOREGOING, IT IS UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF THIS AGREEMENT WHICH PROVIDES LIMITATION OF LIABILITY, DISCLAIMER OF WARRANTIES OR EXCLUSION OF DAMAGES IS INTENDED BY THE PARTIES TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER SUCH PROVISION AND TO BE ENFORCED AS SUCH. FURTHER, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT IN THE EVENT ANY REMEDY HEREUNDER IS DETERMINED TO HAVE FAILED OF ITS ESSENTIAL PURPOSE, ALL LIMITATIONS OF LIABILITY AND EXCLUSIONS OF DAMAGES SET FORTH HEREIN SHALL REMAIN IN EFFECT

15.13 Entire Agreement. This Agreement and Exhibits A, B, C, D, E, and F hereto completely and exclusively states the agreement of the parties regarding its subject matter. It supersedes, and its terms govern, all prior or contemporaneous understandings, agreements, or other communications between the parties, oral or written, regarding such subject matter.

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WITNESS HEREOF, the Parties hereto have executed this Agreement as of the Effective Date hereof by a duly authorized representative.

NET ONE SYSTEMS			FIRST VIRTUAL COMMUNICATIONS, Inc.
(Partner)

By:	/s/ KAZUO SATO		By:	/s/ TIM A. ROGERS

Name:		Kazuo Sato	Name:			Tim A. Rogers

Title:		President, CEO	Title:		CFO
(Print)			(Print)

Date:		April 17, 2002	Date:

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EXHIBIT A

SALES COMMITMENT AND DISCOUNTS

Minimum Purchase Commitment:

[…***…]

In addition to the Minimum Purchase Commitments, listed above, partner will use commercially reasonable efforts to meet the following purchase targets:

[…***…]

DISCOUNT LEVELS

FVC offers the following product discounts from its published Book Price at the time of order. From time to time, FVC reserves the right to add new products to this Discount Schedule or to adjust prices relative to market conditions and dynamics.

Product Volume Discount

[…***…]

[…***…] shall mean FVC products […***…] for the […***…].

[…***…] FVC will provide […***…] to be in effect until […***…].

SUPPORT PRICES

During the Term, […***…], beginning on the […***…] of the […***…]. […***…], beginning on the […***…] of the

[…***…]. […***…], beginning on the […***…] of the […***…].

[*] = CONFIDENTIAL TREATMENT REQUESTED

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EXHIBIT B

LICENSE FOR TRADEMARKS, SERVICE MARKS AND TRADE NAMES

1. Partner may use the Trademarks listed in Section 4 below, as may be supplemented from time to time by FVC. . Partner agrees to submit to FVC any published material not previously reviewed by FVC containing references to the Products for FVC’s approval prior to the publication or release of such published material. Such approval shall not be unreasonably withheld. Partner shall not challenge FVC’s rights to use the Trademarks that FVC may apply to or use in connection with the Products. If Partner in the course of its business in the resale of the Products acquires any goodwill or reputation in any of the Trademarks of FVC applied thereto, then at the expiration or termination of this Agreement all such goodwill or reputation automatically shall vest in FVC without any separate payment or other consideration of any kind to Partner, and Partner agrees to take all such actions necessary to effect such vesting.

2. FVC shall have the sole ability and responsibility to register the Trademarks in assigned Territory. However, Partner shall, at the request and expense of FVC, do such acts or things as FVC may reasonably require for the purpose of FVC’s obtaining, maintaining, enforcing and preserving any of the Trademarks or other proprietary rights of FVC in the assigned Territory, provided, however, that Partner agrees that only FVC has the right to enjoin any infringement or registration by a third party of the Trademarks or similar rights. In the event that any unlawful copying of the Products, infringement of FVC’s rights in the Products, or infringement or registration by a third party of the Trademarks or other property rights of FVC in the assigned Territory comes to the attention of Partner, Partner shall immediately inform FVC in writing, stating the full facts of the infringement or registration known to it, including the identity of the suspected infringer or registrant, the place of the asserted infringement or registration and evidence thereof. Partner agrees to reasonably cooperate with FVC, at the expense of FVC, if FVC sues to enjoin such infringements or to oppose or invalidate any such registration.

3. In order to comply with FVC’s quality control standards, Partner shall (i) use the Trademarks in compliance with all relevant laws and regulations; (ii) accord FVC the right to inspect during normal business hours, without prior advance notice, Partner’s facilities used in connection with efforts to sell the Products in order to confirm that Partner’s use of such Trademarks is in compliance with this provision; and (iii) not modify any of the Trademarks in any way and not use any of the Trademarks on or in connection with any goods or services other than the Products.

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4. Trademarks, Service Marks and Trade Names:

FVC

Click To Meet

CUseeMe

Access NGI

I-Caster

I-Meter

I-Studio

I-Recorder

I-Relay

V-Cache

V-Conference

V-Switch

V-NIC

VC-NIC

V-Caster

V-Gate

V-Gate323

Video Access Node

(VaN)

MOS

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EXHIBIT C

END-USER SOFTWARE LICENSE AGREEMENT

FIRST VIRTUAL COMMUNICATIONS

SOFTWARE LICENSE AGREEMENT

First Virtual Communication Inc. (“FVC”) is providing you a license to the associated Software (the “Software”) and related printed or electronic materials (the “Documentation”) subject to the terms of this Software License Agreement (the “Agreement”).

IMPORTANT – PLEASE READ CAREFULLY

THIS IS A LEGAL AGREEMENT BETWEEN YOU AND FVC FOR THE SOFTWARE, WHICH INCLUDES COMPUTER SOFTWARE AND RELATED DOCUMENTATION. BY CLICKING ON THE “I AGREE” BUTTON BELOW, YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND THE FOLLOWING TERMS AND AGREE TO BE BOUND BY THEM. IF YOU DO NOT AGREE TO THESE TERMS, FVC IS UNWILLING TO GRANT YOU THIS LICENSE AND YOU SHOULD CLICK ON THE “I DO NOT AGREE” BUTTON, IN WHICH CASE: (1) IF YOU RECEIVED THIS SOFTWARE ON MAGNETIC MEDIA OR CD-ROM, PROMPTLY RETURN THE UNUSED SOFTWARE TO THE PLACE FROM WHICH YOU OBTAINED IT; OR (2) IF YOU RECEIVED THIS SOFTWARE VIA DOWNLOAD FROM AN INTERNET WEB SITE, THEN YOU MUST DELETE ALL OF THE DOWNLOADED FILES AND YOU MAY OBTAIN A REFUND IN ACCORDANCE WITH THE REFUND POLICY OF SUCH INTERNET WEB SITE.

3.LICENSE

The Software and Documentation are licensed, not sold, to you. You have a nonexclusive and nontransferable license to install and use the associated Software and Documentation. This Software can only be used on the number of computers for which you have obtained a license from FVC. You may physically transfer the Software from one computer to another provided that the Software is used on no more than one computer at a time. You agree that the Software and Documentation belong to FVC. You agree to keep confidential and use your best efforts to prevent and protect the contents of the Software and Documentation from unauthorized disclosure or use. FVC reserves all rights, title and interest to the Software and Documentation not expressly granted to you under this Agreement.

4.SCOPE OF LICENSE

The Software is licensed solely for your personal use or the internal business use of your business entity. This license gives you the right to install and use one (1) copy of the Software solely in combination with a single computer (the “Computer”). The Computer must be owned by you or your business entity, or provided to you under a third party agreement. Each separate person or business entity is required to obtain a separate license from FVC for each Computer upon which the Software will be utilized. If the Software is installed on a network server or other system that allows shared access to the Software, you agree to limit use of the Software to the number of individuals for which you have acquired a license from FVC. In addition, you agree to provide technical or procedural methods to prevent use of the Software by individuals not specifically licensed to use the Software pursuant to this Agreement. You shall not use any software or hardware, including, but not limited to “multiplexing” or “pooling” software or hardware, to reduce the number of direct connections to the Software from clients, workstations or computers. FVC is not required to provide any maintenance or support services with respect to the Software under this Agreement. You may make one (1) copy of the Software for backup purposes if FVC’s copyright notice is included.

5.RESTRICTIONS

You are not permitted, nor can you allow any third party, to modify, translate, reverse engineer, decompile, disassemble (except to the extent applicable laws specifically prohibit such restrictions) or create derivative works based on the Software or Documentation, or any portion thereof. You are not permitted, nor can you

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allow any third party, to copy the Software or Documentation except as specifically provided by this Agreement. The Software is licensed as a single product. You are not permitted, nor can you allow any third party, to separate the Software’s component parts for use on more than one (1) computer. You are not permitted to sell, rent, lease, lend or otherwise transfer the Software or Documentation on a permanent or temporary basis. You are not permitted, nor can you allow any third party to remove any proprietary notices, labels or trademarks on the Software or Documentation. You are not permitted, nor can you allow any third party, to use FVC’s or FVC’s suppliers’ name, logos, or trademarks in any manner including, without limitation, in your advertising or marketing materials, except to the minimum extent necessary to affix the appropriate copyright or other proprietary notices as required herein. You may not sublicense the Software, or assign, delegate or otherwise transfer this license or any of the related rights or obligations for any reason. Any attempt to make any such sublicense, assignment, delegation or other transfer by you shall be void.

6.UPGRADES

If this version of the Software is an upgrade from another version or other product, this upgrade License supersedes and replaces any previous License. You may use the Software only in conjunction with the upgraded product, unless you destroy the upgraded product.

7.OWNERSHIP & COPYRIGHT

All title, ownership rights, and intellectual property rights in and to the Software and Documentation and any copies thereof are vested in and shall remain in FVC and/or its suppliers. You agree that you neither own nor hereby acquire any claim or right of ownership to the Software and Documentation or to any related patents, copyrights, trademarks or other intellectual property. You own only the magnetic or other physical media on which the Software and related Documentation are recorded or fixed. This license is not on sale of the original or any subsequent copy. The Software and the Documentation is protected by the copyright laws and other intellectual property laws of the United States and international treaties. You may not copy any Documentation. You may not copy the Software (or this license) except to provide the permitted backup copy and to load the Software into the computer as part of executing the Software. ANY AND ALL OTHER COPIES OF THIS SOFTWARE AND ANY COPY OF THE DOCUMENTATION MADE BY YOU ARE IN VIOLATION OF THIS LICENSE.

8.TERM AND TERMINATION

The license is effective until terminated. You may terminate this license at any time by destroying the Software and Documentation and the permitted backup copy. This license automatically terminates if you fail to comply with its terms and conditions. You agree that, upon such termination, you will destroy (or permanently erase) all copies of the Software and Documentation. You also agree that, upon termination, you will return the original Software and Documentation to FVC, together with any other material you have received from FVC in connection with the Software.

9.LIMITED WARRANTY

If the Software is provided on magnetic media or CD-ROM, FVC warrants such media to be free from defects in materials and workmanship under normal use for ninety (90) days from date that you obtain the Software. EXCEPT FOR THIS LIMITED WARRANTY, THE SOFTWARE AND THE DOCUMENTATION ARE PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND EITHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

Some jurisdictions do not allow the exclusion of implied warranties, so the above exclusion may not apply to you. This warranty gives you specific legal rights and you may also have other rights, which vary, from jurisdiction to jurisdiction.

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10.LIMITATION OF LIABILITY AND REMEDIES

TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW: (I) FVC’S ENTIRE LIABILITY AND YOUR EXCLUSIVE REMEDY IN CONNECTION WITH THE SOFTWARE AND THE DOCUMENTATION SHALL BE THAT YOU ARE ENTITLED TO RETURN THE DEFECTIVE MEDIA CONTAINING THE SOFTWARE TOGETHER WITH THE DOCUMENTATION TO THE MERCHANT. AT THE OPTION OF THE MERCHANT, YOU MAY RECEIVE REPLACEMENT MEDIA CONTAINING THE SOFTWARE AND DOCUMENTATION THAT CONFORMS WITH THE LIMITED WARRANTY OR A REFUND OF THE AMOUNT PAID BY YOU; AND, (II) IN NO EVENT WILL FVC BE LIABLE FOR ANY INDIRECT DAMAGES OR OTHER RELIEF ARISING OUT OF YOUR USE OR INABILITY TO USE THE SOFTWARE INCLUDING, BY WAY OF ILLUSTRATION AND NOT LIMITATION, LOST PROFITS, LOST BUSINESS OR LOST OPPORTUNITY, OR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF SUCH USE OR INABILITY TO USE THE SOFTWARE, EVEN FVC OR AN AUTHORIZED FVC DEALER, DISTRIBUTOR OR SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY THIRD PARTY; AND, (III) FVC’S CUMULATIVE LIABILITY UNDER THIS AGREEMENT, UNDER ANY THEORY OF LIABILITY, SHALL NOT EXCEED THE AMOUNT YOU PAID FOR THE SOFTWARE AND DOCUMENTATION.

Some jurisdictions do not allow the exclusion or limitations of incidental or consequential damages so the above limitation or exclusion may not apply to you.

GENERAL.

This Agreement represents the complete and final agreement concerning the license granted hereunder and replaces any and all prior or contemporaneous understandings or agreements, written or oral, regarding the subject matter. This Agreement may be amended only by a writing executed by both parties. THE ACCEPTANCE OF ANY PURCHASE ORDER PLACED BY YOU IS EXPRESSLY MADE CONDITIONAL ON YOUR ASSENT TO THE TERMS SET FORTH HEREIN, AND NOT THOSE IN YOUR PURCHASE ORDER. If any provision of this Agreement is held to be unenforceable, such provision shall be reformed only to the extent necessary to make it enforceable, and the remainder of this Agreement shall nonetheless remain in full force and effect. This Agreement shall be construed, governed, and enforced solely and exclusively by the law of the State of California, USA, excluding conflict of law provisions. The application of the United Nations Convention on Contracts for the International Sale of Goods is expressly excluded. You hereby agree that the courts located in the State of California, USA, will constitute the sole and exclusive forum for the resolution of any and all disputes arising out of or in connection with this Agreement and you hereby irrevocably consent to the personal jurisdiction and venue of such courts and irrevocably waive any objections thereto. You may not assign this Agreement to any third party without first obtaining the express written consent of FVC and any assignment by you without such consent shall be null and void. FVC may freely assign this Agreement to any third party.

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EXPORT CONTROLS.

The Software and related technology may not be downloaded or otherwise exported or re-exported (i) into (or to a national or resident of) Cuba, Iraq, Libya, North Korea, Iran, Sudan, or any other country to which the U.S. has embargoed goods; or (ii) to anyone on the U.S. Treasury Department’s list of Specially Designated Nationals or the U.S. Commerce Department’s Table of Denial Orders. By installing or using the Software, you are agreeing to the foregoing and you are representing and warranting that you are not located in, under the control of, or a national or resident of any such country or on any such list. In addition, you agree to comply with any other applicable U.S. export control laws and any local laws in your jurisdiction that may impact your right to import, export, or use the Software. By installing or using the Software, you are also representing and warranting that you will not use, or permit or authorize others to use, the Software in connection with the design, development, production, stockpiling or use of any chemical or biological weapons. You agree to defend, indemnify and hold FVC harmless from any claims arising out of or relating to your violation of any such export control laws.

U.S. GOVERNMENT RESTRICTED RIGHTS LEGEND

The Software is a “commercial item” as that term is defined at 48 C.F.R. 2.101, consisting of “commercial computer software” and “commercial computer software documentation” as such terms are used in 48 C.F.R. 12.212. Consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1 through 227.7202-4, all U.S. Government end users acquire the Software with only those rights set forth therein

[I AGREE] [I DO NOT AGREE]

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EXHIBIT D

PRODUCT WARRANTY

FVC warrants that FVC hardware Products conform to the published product specifications and shall be free from material defects in design, material and workmanship for a period of one (1) year from date of shipment to End-user Customer. FVC agrees to provide the warranty obligations with respect to the software Products set forth in and in accordance with FVC’s current End-User License Agreement In the event that any Product is found to be defective, FVC shall, at its sole discretion, either replace or repair the defective Product at its cost. No FVC Reseller shall make additional warranties on behalf of FVC. FVC reserves the right to change its warranty policies at any time.

Under no circumstances shall the warranties set forth above apply to any Product which has been sold outside the terms of the Reseller’s agreement, customized or modified without FVC’s consent, damaged or misused. Notwithstanding any limitations set forth in this Agreement, FVC shall not be held responsible for any incidental, consequential or special damage which may result from a defective part except for the repair or replacement of such part.

Reseller will pass through to End-User Customers the warranties made by FVC under this Section BUT will expressly indicate to End-User Customers that they must look solely to Reseller in connection with any problems, warranty claims, or other matters concerning the Product.

THE PROVISIONS OF THE FOREGOING WARRANTIES ARE IN LIEU OF ANY OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL (INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). IN NO EVENT SHALL FVC BE LIABLE TO RESELLER, END USER CUSTOMER, OR ANY OTHER PERSON OR ENTITY FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES) ARISING OUT OF THE MANUFACTURE, SALE OR SUPPLY OF THE PRODUCTS, EVEN IF FVC HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES

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EXHIBIT E

REQUIRED SUBLICENSE AGREEMENT PROVISIONS

End-User Customer Sublicense Agreements: Each Sublicense Agreement shall at a minimum include the provisions set forth below and shall include no term which derogates from or is inconsistent therewith. FVC will be referred to as Partner’s supplier in the Sublicense Agreements.

1. The Software is only licensed to End-User Customer for End-User Customer’s internal, non-transferable and non-exclusive use (without the right to sublicense) at the facilities of End-User Customer in the Territory and only on those computers owned or leased and used, by End-User Customer;

2. No right, title or interest to the Software, or any Intellectual Property Rights therein or the media on which it is provided, is transferred to End-User Customer;

3. End-User Customer shall not copy the Software except for up to two (2) copies for back-up or archival purposes and only as necessary to use the Software on the designated computer and all such backup copies shall contain all copyright and other proprietary notices or legends of FVC that are on the Software as delivered to the End-User Customer. No copies of the applicable Documentation may be made by the End-User Customer;

4. End-User Customer agrees not to modify, translate, generate derivative works from, or reverse assemble, decompile, or otherwise attempt to derive source code of the Software;

5. The Software is subject to FVC’s copyright. FVC owns all Intellectual Property Rights in and to the Software. Software programs, although copyrighted, are unpublished and contain proprietary and confidential information of FVC and are considered by FVC to be trade secrets, and the End-User Customer agrees to hold the Software in confidence. End-User Customer agrees to take all reasonable precautions to safeguard the confidentiality of such Software. The End-User Customer further agrees not to use the Software, except for its own internal business needs. End-User Customer shall not use the Software to develop any software or product which competes with the Software;

6. The End-User Customer’s rights with respect to the Software programs may be terminated should the End-User Customer breach any term of the Sublicense Agreement and fail to cure such breach within thirty (30) days after written notice;

7. Upon any termination or expiration of the Reseller Agreement between FVC and Partner, the Sublicense Agreement shall automatically be assigned to FVC or its designee for the remaining duration of the Sublicense Agreement. Upon the termination of the Sublicense Agreement, the End-User Customer shall return all Software and Documentation to Partner; and

8. FVC IS AN EXPRESSLY INTENDED THIRD PARTY BENEFICIARY OF THE SUBLICENSE AGREEMENT AND SHALL HAVE THE RIGHT TO ENFORCE IT DIRECTLY AGAINST THE END-USER CUSTOMER.

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EX-99.1 4 j4458_ex99d1.htm EX-99.1

Exhibit 99.1

CERTIFICATION

Pursuant to Section 906 of the Public Company Accounting Reform and Investor Protection Act of 2002 (18 U.S.C. § 1350, as adopted), Killko Caballero, the Chief Executive Officer of First Virtual Communications, Inc. (the “Company”), and Timothy Rogers, the Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1. The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2002, to which this Certification is attached as Exhibit 99.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report.

Dated: August 14, 2002

/s/ Killko Caballero		/s/ Timothy Rogers
Killko Caballero		Timothy Rogers
Chief Executive Officer		Chief Financial Officer

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1.0 DEFINITIONS. The definitions listed below and elsewhere in this Agreement apply to both their singular and plural forms, as the context may require.

1.2 The “Products” shall mean those products, components and parts thereof offered for sale by FVC as listed in FVC’s then-current price list, which may be amended from time to time by FVC. The current list is set forth in Exhibit A, which is attached hereto.

1.3 The “Term” shall have the meaning set forth in Section 3.1 below.

2.0 APPOINTMENT.

4.0 ORDER; ACCEPTANCE; DELIVERY.

4.2 FVC reserves the right, at its sole discretion, from time to time to discontinue or change any Product, or design or specifications thereof, or enhance elements of this agreement, with thirty (30) days prior notification in writing to Partner.

4.5 Software License

5.0 OBLIGATIONS OF PARTNER AND FIRST VIRTUAL COMMUNICATIONS.

5.3 FVC shall provide Partner with manuals for the Products free of charge via online access to the Internet. Such access will be subject to password protection in order to restrict access and use of such manuals to Partner or its End-User Customers.

6.0 OBLIGATIONS FOR THE TERM.

6.3 Designated representatives of Partner and FVC shall meet on a monthly basis to discuss sales of FVC products, such discussions shall include Point of Sale (POS) information by region into which the sold items are delivered and installed.

7.0 PRICES AND COMMERCIAL CONDITIONS/TERMS.

7.1 The prices of the Products and accompanying Product support to Partner shall be subject to discount levels as outlined in Exhibit A off of FVC’s Recommended Selling Price List, which will be amended by FVC from time to time.

7.2 Full payment for the Products (including any freight, taxes or other applicable costs initially paid by FVC but to be borne by Partner) shall be made by Partner to FVC net […***…] from the date of FVC shipment of the Products. All billing and payments shall be in

[*] = CONFIDENTIAL TREATMENT REQUESTED

7.3 Payment terms for Partner’s Sales Commitments for the […***…], shall be due and payable […***…] from the end date of each respective […***…]. Payment terms of installment payment shall be due net […***…] from the date of FVC shipment of the Products.

7.4 Late payments shall accrue interest from the date due until the date paid at a rate of […***…] percent […***…] per month or the maximum rate permitted by applicable law, whichever is less.

7.5 Prices for the Products are F.O.B. FVC’s designated facilities in the United States. Prices are exclusive of all applicable Taxes. Partner shall pay all Taxes associated with the sale and delivery of all Products, and any collection costs, penalties and interest, associated with the Taxes.

8.0 LICENSE FOR TRADEMARKS, SERVICE MARKS AND TRADE NAMES.

[*] = CONFIDENTIAL TREATMENT REQUESTED

9.0 WARRANTIES.

9.3 Partner will expressly indicate to their End-User Customers that they must look solely to Partner in connection with any problems, warranty claims, or other matters concerning the Product.

9.4 Partner Warranties. Partner hereby represents, warrants and covenants the following on a continuing basis during the Term:

(g) Except as set forth in Section 14.1, no consent, approval, license, permit, authorization, declaration, filing, registration, or similar formality of any kind is or shall be required to be made or obtained in the Territory by either party in order to lawfully implement this Agreement;

(j) Partner shall not make any statement, representation, or warranty or assume any obligation or liability regarding FVC or the Products which is not previously authorized in writing by FVC;

(k) Partner shall perform and implement this Agreement and use the licenses granted to it by FVC under this Agreement only for lawful purposes and in accordance with applicable law and regulations and without violating any third party rights.

11.0 INDEMNIFICATION.

12.0 CONFIDENTIALITY.

13.0 TERMINATION.

13.3 Any termination of this Agreement by FVC or Partner under this Section 13 herein shall not constitute an election of remedies by the terminating party and the terminating party shall, in addition, have all other remedies provided at law.

14.0 COMPLIANCE WITH APPLICABLE LAW.

14.5 Boycott. Partner shall not, directly or indirectly, take any action that would cause FVC to be in violation of United States anti-boycott laws under the United States Export Administration Act or the United States Internal Revenue Code, or any regulation thereunder.

15.0 MISCELLANEOUS.

15.3 Rights. The waiver of any right accruing to any party hereunder by failure of that party to exercise that right in a given instance, or delay in exercising that right, shall not be deemed a waiver of said right in future instances of a similar nature.

15.5 Amendments. No modification, termination, extension, renewal or waiver of any provisions of this Agreement shall be binding upon any party unless made in writing and signed by an authorized officer or representative of each of the parties.

15.7 Force Majeure. No party shall be liable to any other party for failure or delay in the performance of any of its obligations under this Agreement for the period and to the extent that such

failure or delay is caused by riots, curtailments, civil commotion, wars, hostilities between nations, governmental laws, orders or regulations, acts of God, storms, fires, strikes, explosions or other similar or different contingencies beyond the reasonable control of the respective party.

[*] = CONFIDENTIAL TREATMENT REQUESTED

3.LICENSE

4.SCOPE OF LICENSE

5.RESTRICTIONS

6.UPGRADES

7.OWNERSHIP & COPYRIGHT

8.TERM AND TERMINATION

9.LIMITED WARRANTY

10.LIMITATION OF LIABILITY AND REMEDIES

U.S. GOVERNMENT RESTRICTED RIGHTS LEGEND

Reseller will pass through to End-User Customers the warranties made by FVC under this Section BUT will expressly indicate to End-User Customers that they must look solely to Reseller in connection with any problems, warranty claims, or other matters concerning the Product.

7.3 Payment terms for Partner’s Sales Commitments for the [……], shall be due and payable [……] from the end date of each respective [……]. Payment terms of installment payment shall be due net [……] from the date of FVC shipment of the Products.

7.4 Late payments shall accrue interest from the date due until the date paid at a rate of [……] percent [……] per month or the maximum rate permitted by applicable law, whichever is less.